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Local Govt Units Lose UGX 19.4 Billion in Property Rates Revenue

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A report by the Auditor General that sampled 32 local government units indicates nine of these failed to collect 84 percent of property rates resulting into Shillings 19.4 billion property revenue loss. The December 2016 report titled Financing of Local Government in Uganda shows that the nine local government units only managed to collect 3.7 billion Shillings in property tax during the 2015/2016 financial year. This represents 16 percent of the 23.1 billion Shillings they were supposed to collect.
A report by the Auditor General that sampled 32 local government units indicates nine of these failed to collect 84 percent of property rates resulting into Shillings 19.4 billion property revenue loss.

The December 2016 report titled Financing of Local Government in Uganda shows that the nine local government units only managed to collect 3.7 billion Shillings in property tax during the 2015/2016 financial year. This represents 16 percent of the 23.1 billion Shillings they were supposed to collect.

The local government units mentioned include Mbarara Municipality, Mbale Municipality, Masaka Municipality, Lira Municipality, Masindi Municipality, Jinja Municipality, Hoima Municipality, Fort Portal Municipality and Busia district local government.

For instance, Busia district did not collect any shilling out of 3.8 billion Shillings it was supposed to get, while Fort Portal Municipality got 467 million Shillings out of 1.5 billion. Hoima Municipality collected 94 million out of 1.18 billion Shillings; Jinja Municipality collected 1.8 billion out of 6.9 billion Shillings, while Lira Municipality collected 84 million out of over one billion Shillings. Masaka Municipality collected 236 million out of 1.7 billion while Mbale Municipality managed to raise 428 million out of 2.2 billion Shillings. Mbarara Municipality raised 226 million out of 4.2 billion Shillings it was supposed to collect.

It is only Masindi Municipality out the nine local governments which collected more property revenue than it was supposed to get, raising 102 million in excess of 293 million it had projected.

"Property rates constitute the major source of Local government revenue and therefore have the potential to substantially enhance the revenue of local governments if well administered. However, this potential has not been exploited as substantial amounts of assessed property rates are not collected,” the report says.

The nine local governments, which had property valuation registers, collected only 16% of the assessed property tax leading to a shortfall of 19.4 billion Shillings, representing 84% of the projected revenue.  

The other 23 out of 32 local government units which formed part of the report sample "did not collect any property rates due to lack of property valuation registers, and therefore their potential could not be ascertained."

The low collections for property rates are attributed to weak collection and enforcement mechanisms at local government level.

The report recommends that the Ministry of Local Government should support the units to come up with property valuation registers to boost local revenue collections.

It also suggests that the ministry should identify good local revenue enhancement practices in good performing local governments and roll them to low performing ones to improve on revenue collections and management.

"Local governments should put sustainable efforts in valuation, registration and collection of property rates tax as this will go a long way in improving local revenue collections since this particular source has been seen to hold a big percentage contribution,” reads the report.

The report proposes setting of local revenue performance targets to Accounting Officers of local government as part of their performance contracts in order to improve their involvement in revenue management. 

Declining Share of National Cake

The report reveals that whereas national budget has been growing over years, the share that local governments receive from the central government has been reducing.

"Through a comparison of central government grant allocations to local government with the national budget and domestic revenues for the last 13 years, it was noted that whereas the allocations in the national budget have generally been increasing, the share of transfers to local governments has generally been decreasing over the same period,” reads the report.

According to the report, the share of transfers to local governments against the national budget stood at 12.90% in 2015/16 compared to 25.47% in 2003/04.

It also reveals that whereas there has been an increasing trend in the domestic revenues collections by Uganda Revenue Authority (URA), the share of local governments transfer to domestic revenue has been declining.

"The share of transfers to local government was 44.8% in the financial year 2003/04 and declined up to 21.0% in the financial year 2015/16,” reads the report.

The report shows that there has been a mismatch between growth in domestic revenue collections and the transfers to local government, with URA revenues growing by 80.9% from 6.22 trillion in the financial year 2011/12 to 11.23 trillion Shillings in the financial year 2015/16. In the same period, central government transfers to local governments grew by only 42.6% from 1.65 trillion to 2.36 trillion Shillings.

The Auditor General observes that declining share of allocations to local government does not reflect equitable distribution of resources and is hampering local governments' ability to deliver services in the key service sectors of education, health, water and roads.

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