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Why LCs stormed out of the budget meeting

By Vision Reporter

Added 12th December 2007 03:00 AM

THE walk-out by LC5 chairmen from a budget meeting last week marked the climax of a struggle that dates three years back. It has been a struggle involving LC5 chairmen and the Government. The chairmen have been calling on the Government to reinstate the suspended graduated tax compensation that was

THE walk-out by LC5 chairmen from a budget meeting last week marked the climax of a struggle that dates three years back. It has been a struggle involving LC5 chairmen and the Government. The chairmen have been calling on the Government to reinstate the suspended graduated tax compensation that was

By Joshua Kato
and Grace Agaba


THE walk-out by LC5 chairmen from a budget meeting last week marked the climax of a struggle that dates three years back. It has been a struggle involving LC5 chairmen and the Government. The chairmen have been calling on the Government to reinstate the suspended graduated tax compensation that was not included in the 207/2008 burdget.

When the tax was suspended in 2005, a compensation fund was introduced to cater for the shortfall. In the 2005/2006 budget, sh34b was given to local governments as compensation. In the 2006/07 budget, the figure rose to sh45b.

However, the compensation was nowhere in the 2007/08 budget. This angered the leaders, who have been demanding that either the compensation fund be reinstated or new taxes be operational.

According to the Minister of Finance Dr Ezra Suruma, new taxes were introduced to replace the compensation. Therefore, there is no provision in the budget for this fund at the moment. Suruma advised local leaders to find ways of enhancing local revenue collection, rather than putting pressure on the Government.

In the 2007/08 budget, new sources of revenue were identified. However, the new taxes have failed to take off. The Local Service Tax and the Hotel and Lodgings Tax have all failed to be operationised. “We did not foresee the intricacies involved in operationalising these taxes. We are sorry for that,” Maj. Gen. Kahinda Otafiire told the local leaders.

The suspension of the compensation fund came at a time when even the other taxes had been affected by politics. Among these sources of revenue are boda-bodas, property and ground rates and market dues among others.

Most districts have budgets that are 93% funded by the central government. For the last three years, at least sh1trillion, about 22% of the total national budget, has been sent from the centre to the districts every month on several votes. These include conditional and unconditional grants, local governments development programmes, universal primary education grants, district hospitals, salaries for chief administrative officers and chairmen, among others.

Kampala receives the largest share of about sh4b per month, while large districts like Mukono, Wakiso, Bushenyi and Masaka receive about sh2b per month. Smaller districts receive between sh500m and 900m per month.
Districts are supposed to top up the development funds through co-funding. However, without taxes, many districts are not able to co-fund.

“Graduated tax compensation is the only fund that does not have any strings attached. The districts can use it to carry out any development initiatives,” says Masaka district LC5 chairman, Vincent Ssempijja. Without the funds, all the programmes are bound to stall, he added.

“Lower local governments have failed to operate because of lack of funds,” laments Karazarwe, the chairman of the Uganda Local Governments Association.
The local governments need funds to organise meetings and pay councillors.
They are supposed to use the graduated tax compensation to finance their councils. All local governments are supposed to have at least one council meeting every three months.

According to the Local Government Act, councillors can share not more than 20% of all revenue collected in their area. Without proper sources of revenue, even their mandatory remuneration is affected.
Initially, the unconditional grants give districts some funds to spend without attachments.

“Most of it is now spent on paying salaries. There is very little left to do other things,” observes Iganga district LC5 chairman, Asuman Kyafu.
In the current budget, the Ministry of Finance increased unconditional grants by sh33b. But, according to local leaders, this amount does not play the same role as the graduated tax compensation.

The amount that every district received under the graduated tax compensation varied. Big districts like Kampala, Mukono and Wakiso received about sh1b per year, while smaller districts received between sh500m and sh700m per year.
“We are not able to co-fund development programmes because we do not have funds,” says Col. Okello Engola, the Oyam LC5 chairman. The programmes that need co-funding include the National Agricultural Advisory Services, the Universal Primary Education and health.

The local leaders are also angry that soon after graduated tax was suspended, the School Facilitation Grant (SFG) was also scrapped in many districts and reduced in others. SFG was used to enhance classroom, teachers houses and toilet construction in schools. The scapping was a big blow. “We want the SFG reinstated in all districts,” Karazarwe said.

Local leaders see this lack of funding as sabotage by sections of the central government. “The central government has not seriously taken up the issue of funding local governments. This will certainly kill the spirit of decentralisation,” laments Julius Ochen, the Amuria LC5 chairman. “There is no way we can give services to the people without funds,” Ochen adds.

The issue of poor funding has been going on for years and various ways of improving local revenue have been suggested. Local leaders have been proposing a system under which they could collect revenue on behalf of the Governments and share the proceeds, in the process reducing the Uganda Revenue Authority’s expenses on revenue collection.

“Seventy-five percent of the taxes in this country are collected from Kampala. However, the city authorities do not get any share of this revenue. We are asking the Government to involve us in the collection of this revenue so that we can also get a share,” Kampala Mayor Nasser Ssebaggala says. This was also passed as one of the recommendations during this year’s Joint Annual Review of Decentralisation meeting.

Besides, local leaders argue that even with the new taxes, graduated tax compensation must still be provided. This is because the ceiling for the local services tax is too high for most villagers. This means that only urban local governments can benefit from it.
But as the districts demand more funding, corruption and embezzlement at the districts make the situation hazy.

According to the 2006 Auditor General’s report, districts were among the most corrupt institutions in the country. The report pointed out that there was very little value for money in most of the programmes undertaken by the districts, including classroom construction, roads, toilets and agriculture.

“I call upon the district chairmen not to go on strike. We are doing everything possible to get funds and I assure you we shall find a solution to this problem,” Otafiire said.

Why LCs stormed out of the budget meeting

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