Tesfai, Ghebrehiwet (PhD)Alemu, Teshager2019-04-032023-11-082019-04-032023-11-082016-06http://etd.aau.edu.et/handle/123456789/17519The 1995 constitution is the base for fiscal decentralization in the country, which provided for the division of power on expenditure and revenue-raising responsibilities of the central government and the regional state. Fiscal decentralization is one component of decentralization that gives authority to local governments to collect revenue through taxes and responsibility over spending decisions. As proclamation No. 65/2003 of the urban local government proclamation of Oromia regional state, municipalities of the region have powers and responsibilities over municipal revenue and expenditure. Even though fiscal decentralization has given revenue raising and spending decision powers to lower levels of government, the implementation process has often been a daunting task for many local authorities in the region. Although the region decentralized municipal revenue to its cities/towns on revenue raising and expenditure management are not efficiently and effectively exercised. Insufficient revenue collection and weak expenditure management leads to financial incapability such that public infrastructure and services could not be financed amply. Sebeta municipality faces the problem of financial capacity to deliver infrastructure and services to its citizens. While a number of studies have documented the financial incapacities of Ethiopian ULGs, they have been focused on state revenue which ULGs lack fiscal autonomy both on its revenue raising and expenditure but they did not gave much emphasis on municipal revenue. Municipals in the region have full autonomy over municipal revenue, even though there is little interference on the tariff setting, because the Regional Revenue Authority set the upper and the lower limit. Therefore, the main focus of this paper is to assess Fiscal capacity of ULG on municipal revenue: the efficiency and effectiveness of revenue collection and expenditure management of Sebeta Municipality. To obtain edifying data the paper used a positivist survey study. Municipality financial documentation and questionnaires were the main sources of secondary and primary data respectively. Descriptive statistical methods were applied in the analysis of data to arrive at measures of efficiency and effectiveness in revenue collection and expenditure management of the municipality. The study revealed that the municipality is not efficient and effective in its revenue collection and expenditure management. The main explanation for such inefficiency comprise; weak assessment of taxable sources, poor organizational structure, inadequate accounting system, absence of clear operational guidelines, poor planning and data base management, and lack of skilled manpower. To resolve such challenges, the paper recommend the following actionable measures; Establishing Tax payers data base systems, improving planning and implementing capacity, Expanding and exhaustively raising the revenue base of local revenue sources, Establishing appropriate guidelines and methods of revenue collection, strengthening valuation, enforcement and tariff setting effort, installing accounting system that produces timely and reliable information, encouraging community participation in planning and resource allocation and revising municipal organizational Structure.enconstitution is the base for fiscal decentralizationThesis