UN JOINT PROGRAMME ON LOCAL GOVERNANCE AND …

UNCDF- LOCAL REVENUE MOBILIZATION INITIATIVE. Final Report 26th

June 2015

Page 1 of 46 PUNTLAND STATE OF SOMALIA LRMI Frameworks Final Report

UN JOINT PROGRAMME ON LOCAL GOVERNANCE

AND DECENTRALISED SERVICE DELIVERY (JPLG)

IN SOMALIA

PUNTLAND STATE OF SOMALIA

Local Revenue Mobilization in Somaliland, Puntland and the Federal

Government of Somalia (FGS)

Local Revenue Mobilization Frameworks

Final Report

Report By:

Kandole B. Patrick

[email protected]

+256-772-409-113 or +256-752-409-113

26th

June 2015


June 2015


Contents

FOREWORD ............................................................................................................................................................... 3

ACRONYMS ................................................................................................................................................................ 5

EXECUTIVE SUMMARY ......................................................................................................................................... 6

1. BACKGROUND ................................................................................................................................................ 8

2. ASSIGNMENT OBJECTIVE ........................................................................................................................... 8

3. KEY EMERGING ISSUES FROM MISSION ............................................................................................... 9

4. LEGAL AND POLICY FRAMEWORK CHALLENGES .......................................................................... 10

CONCLUSION OF LEGAL FRAMEWORK ..................................................................................................................... 12

5. ENUMERATION AND REGISTRATION ................................................................................................... 12

CONCLUSION OF ENUMERATION AND REGISTRATION .............................................................................................. 13

6. ASSESSMENT AND BILLING ...................................................................................................................... 13

CONCLUSION ON ASSESSMENT AND BILLING ........................................................................................................... 14

7. SENSITIZATION, CUSTOMER CARE AND PUBLICITY ...................................................................... 14

CONCLUSIONS ON SENSITIZATION, PUBLICITY AND CUSTOMER RELATIONS ........................................................... 15

8. OSR COLLECTION PERFORMANCE AND MONITORING ................................................................. 15

CONCLUSIONS ON COLLECTION AND MONITORING ................................................................................................. 19

9. RECORDING, AUDIT AND ACCOUNTABILITY ................................................................................... 21

CONCLUSIONS ON RECORDING AND ACCOUNTABILITY ........................................................................................... 21

10. REVENUE ADMINISTRATION- WHAT WORKED AND QUICK WINS ............................................. 23

11. LOCAL REVENUE MOBILIZATION MANUAL AND GUIDE ............................................................... 24

12. TRAINERS MANUAL AND GUIDE ............................................................................................................ 25

13. WORKSHOPS ................................................................................................................................................. 27

14. THE LRMP CONCEPT .................................................................................................................................. 28

15. DEVELOPMENT APPROACH FOR LRMP ............................................................................................... 29

16. SAMPLE LRMP .............................................................................................................................................. 31

17. REVENUE PERFORMANCE PROJECTION 2015-2019........................................................................... 32

18. REVENUE MOBILIZATION ACTION PLAN (R-MAP) ........................................................................... 33

19. R-MAP SAMPLE FORMAT- COLLECTION AND MONITORING ....................................................... 35

20. GOING FORWARD-NEXT STEPS .............................................................................................................. 36

21. CONCLUSION................................................................................................................................................. 37

22. APPENDIX 1: DOCUMENT REVIEW......................................................................................................... 38

23. APPENDIX: 2 PUNTLAND -FIELD CONSULTATIONS ATTENDANCE LOG SHEET ..................... 39

24. APPENDIX 3: CLASSIFICATION OF LOCAL REVENUE SOURCES ................................................ 41

25. ANNEXTURE ONE: SUMMARY OF FIELD MISSION EMERGING ISSUES .................................... 42


June 2015


Foreword

The local revenue situation in Somalia has started an upward trend after many years of low

performance. However, the revenue levels are still below the desired levels to adequately fund

the cost of decentralized services. The concept of decentralization implies a legal obligation on

municipalities to strive to enhance revenues and utilize the sources to finance service delivery

within their budget.

The JPLG-UNCDF has partnered with the Ministries of Interior and Federalism (MoIF) and the

Ministries of Finance in the respective regions to provide technical support to the Local

Revenue Mobilization Initiative (LRMI). The overall goal of the Initiative is to improve

revenue generation at the local level and promote better service delivery and local development

through a more effective and efficient revenue administration.

This phase of the Revenue Mobilization Initiative is to support development of Local Revenue

Mobilization Plans [LRMP] and a Revenue Mobilization Action Plans [R-MAP] as a follow up

action on the Local Revenue Mobilization in Somaliland, Puntland and the Federal

Government of Somalia (FGS), Draft Proposal Framework April 2014.

Insufficient revenue generation is most commonly the result of a combination of factors,

including; tax base [what to be taxed], tax coverage [who is paying and how much], tax

assessment [basis of tax determination], Collection effectiveness, [how much of billed is

collected], collection efficiency [cost of collection per shilling] payment procedures and weak

human resource factors.

Developing a LRMP implies that the regional and district governments in Somalia are making a

commitment to putting in place a wide-ranging series of improvements to its policies,

procedures, staffing and organizational structure that impacts on revenues and service delivery.

The R-MAP approach is to have implementation in three phases, Short, Medium and Long Term

where the short term, 0-6months, will be to focus on delivery of early results by initially looking


June 2015


at quick win situations. The short term strategy will be to target what is perceived as collectable

and receivable.

Support for development of comprehensive R-MAPs was through workshops for Puntland. This

intervention will require further support by coaching and mentoring staff in respective regions to

come up with a more holistic LRMP and R-MAP by the close of 2015.

To ensure appropriate accountability, an internal Audit manual and guide will be required to

support the accountability and oversight function within local governments.


June 2015


Acronyms

AIMS Accounting Information Management System

ALGA Association of Local Governments

BIMS Billing Information Management System

CEO Chief Executive Officer ( Executive Secretary)

CFO Chief Finance Officer

CIA Chief Internal Auditor

CSOs Civil Society Organizations

FGS Federal Government of Somalia

GIS Geographic Information System

IFMS Integrated Financial Management System

ILO International Labour Organisation

IR Inception Report

JPLG Joint program for Local Governance in Somalia

LGs Local Governments

LGs Local Governments

LRMP Local Revenue Mobilization Plan

LGRMP Local Government Revenue Mobilization Plan

MoF Ministry of Finance

MoI Ministry of Interior

MoIF Ministry of Interior and Federalism

OSRs Own Sourced Revenues

RIP Revenue Improvement Plan

R-MAP Revenue Mobilization Action Plan

UNCDF United Nations Capital Development Fund

UNDP United Nations Development Program


June 2015


Executive Summary

The underlying intent of the Puntland mission study in February to March 2015 by UNCDF was

to identify issues that will inform the development of Revenue Mobilization Manual and Guide,

support development of LRMP/R-MAP and to conduct workshops for training of trainers in

preparation for a roll out of training in all target districts. Furthermore these findings will

support the development of an internal audit manual and guide.

The key challenges identified by the mission centered on (1) low revenue base due to the level of

economy and poverty (2) Low collection efficiency where all that is billed is not collected (3)

low capacity in terms of equipment and personnel (4) low willingness to pay due to low

downward accountability and lack of awareness (5) the legal framework is not enabling enough

especially during times of collection enforcement (6) charging services below market cost and

generally unrealistic tax tariff rates, (7) a weak internal audit and oversight function.

These challenges are exacerbated by low capital investments into visible services and poor

accountability. The UNCDF has had a series of interventions aimed at increasing service

visibility as a support mechanism for promoting willingness to taxes.

The merging issues from the mission informed the development of Revenue Mobilization

Manual and Guide on which basis the workshops were held. The key workshop outputs was

support for the development of LRMP and R-MAP including skills transfer for personnel who

will participate in the roll out training. A manual for Trainers who will participate in the roll out

training had also been developed.

The workshops held during May and June 2015 conclude that the most crucial next step actions

should involve the following; (1) Roll out of training (2) development of LRMP/R-MAP

focusing on what has been tested, on initiatives that will easily be supported politically and are

administratively feasible (3) Review of Tariffs structure and related legal framework1 (4) review

organization service structure (5) develop accountability and Internal Audit Manual (6) Training

and Skilling of the Internal Audit and Oversight function (7) Complete the Municipal Finance

Policy (8) budget guidance and cost rationalization (9) communication strategy (10 PPP strategy

1 Review of legal framework is on-going in Puntland and it is expected that it will be will be complete by January

2016


June 2015


A sound revenue system is essential and serves as a crucial tool for the successful running of

local government. The Municipal Finance Policy must therefore be augmented with development

of Accountability and Internal Audit Manuals and eventually the Finance and Accounting

Manual and regulations. Quality recording and accountability may be difficult in the absence of

computerized systems for revenues, budgeting and spending.

One of the key assumptions in the overall LRMI frameworks is that the people and governance of

target local governments are able and willing to make the necessary effort to increase the

revenue levels, and to undertake all administrative measures within an appropriate time

framework. And that the local governments will have a professional, well empowered and liable

administration with improved financial capacity, strong internal audit and accountability

function.


June 2015


UNCDF-LRMI PROGRAM

1. Background

The UN Joint Program on Local Governance and Decentralized Service Delivery (JPLG) in

Somalia is a joint program of ILO, UNCDF, UNDP, UN-HABITAT and UNICEF. The program

has determined that revenue mobilization at the local level will have a marked impact on the

key objective of improvement in good governance, and equitable priority service delivery in

selected locations.

Furthermore, local revenue mobilization has the potential to foster peace through increased

political and administrative accountability by empowering communities, and betterment of

service delivery. For a futuristic Somalia under decentralization, the motivation for increasing

revenue volumes and the effective accountability is a key success factor for good governance and

equity.

The UNCDF, on behalf of JPLG, in partnership with the Ministries of Interior and Federalism

(MoIF) and the Ministries of Finance in the respective regions to provide technical support to

the Local Revenue Mobilization Initiative (LRMI). The overall goal of the Initiative is to

improve revenue generation at the local level and promote better service delivery and local

development through a more effective and efficient revenue administration.

There is evidence that the coast line and other areas within Puntland are endowed with minerals,

emeralds, gas and Oils, which are a potential for future local government revenues through

Royalties.

2. Assignment Objective

The key result area for this assignment was to develop a LRMI framework manual and guide and

further provide supporting skills for development of Local Revenue Mobilization Plan [LRMP]

and Revenue Mobilization Action Plan, [R-MAP] as a follow up action on the UNCDF-Local

Revenue Mobilization in Somaliland, Puntland and the Federal Government of Somalia

(FGS), Draft Proposal Framework, April 2014.


June 2015


This objective has been accomplished through; (1) conducting a fact finding mission (2)

development formulation of a Revenue Mobilization Manual and Guide (3) development of a

trainers manual and Guide (4) conducting workshops to provide skills to staff who will

participate in the roll out training.

3. Key Emerging Issues from Mission

The state of revenue mobilization depends on the economic environment of the targeted regions,

Puntland. Puntland has a combined population of about 4,284,6332 persons, with over 34%

resident urban areas, while rest is rural-nomadic. Recent surveys indicate that about 73% of the

population is living in poverty worsened by high unemployment levels.3 The overall economy is

underpinned by the livestock sector, estimated to contribute 60% of GDP.

The population engaged in economic activities is minimal and by implication, there is low

taxable capacity from individual incomes and wealth. Nationally the situation is made more

complicated considering that the population growth rate estimated at 3.14%, which may have the

consequence of ever increasing demand and pressure on the already strained social services.

The Local revenue mobilization situation is therefore becoming more urgent as a means to

provide and deliver the much needed services at a micro level.

The UNCDF mission was conducted during the Months of March and April 2015 and generically

identified major bottlenecks in the revenue administration process. The Revenue administration

process has the following reference points (1) Legal and Policy framework (2) Enumeration and

Registration (3) Sensitization and Publicity (4) Assessment and Billing (5) Collection and

Monitoring (6) Recording and Accountability.

The challenges are exacerbated by low capital investments into visible services and poor

accountability. The UNCDF has had a series of interventions aimed at increasing service

visibility as a support mechanism for promoting willingness to taxes.

2 Puntland Ministry of Planning 27

th May 2015, but still contested, earlier estimates were 2.5m

3 Somaliland sector functional assessment report 2012


June 2015


4. Legal and Policy Framework challenges

(1) All the regions operate a decentralized system of governance which allows a level of

discretion in revenue administration at the local level. The centre provides remittances

under the fiscal decentralization process; these are different for each region.

(2) The amount of funds transferred to LGs by the Centre has no relationship with services

rendered4 except in the case of Counterpart funding for Donor funds. There is also no

linkage to the levels of revenues a LG is able to collect.

(3) There is no discernable trend in the level of grants transferred as this depends on the

level of revenues raised by the centre.

(4) Local tax tariffs are approved by the Ministry of Interior on application by the LG

Councils. The last known approved tariffs are dated 2009 and are extremely out of the

current economic reality. LGs are charging different rates according to their own

assessment and generally not following any nationally set guidelines currently.

(5) Puntland State of Somalia has an on-going review of the legal framework and Tariffs

structure which may be complete by January 2016. This is a costly and skills consuming

exercise which may require support of the UNCDF. It hoped that the other parts of

Somalia will emulate the Legal framework review in Puntland.

(6) There are no specific laws to govern specified revenue sources which create

complications during assessment and payment enforcement.

(7) The legal framework5 lists the revenue categories that may be collected by designated

local governments. The range and powers on revenues to be collected are based on

grading of Local governments; they are divided into four grades, A to D, where “A”

designates the capital of each region with more powers to collect revenues, while districts

are graded from “B” to “D” with a smaller range of taxes assigned to them. LGs in Grade

4 The Somaliland government provides 12.5% of national budget as transfers to LGs while Puntland

provides for 2.5%. Municipalities hosting a sea Port get in addition a direct share of customs duty at 10%

and 2.5% in Somaliland and Puntland respectively 5 Law No.7 issued in 2003 lists all Lag revenues. Law no.3 & 12 Regions and districts administration, and

Puntland Taxation framework 2014


June 2015


are more endowed and fund their total budget to more than 70% in most cases, while the

lower grades depend much more on transfers from the centre6.

(8) The existing administrative law provides Local governments with more than Twenty (20)

Own Source Revenues (OSRs), which the mission has for ease of reference divided into

four major categories (1) Livestock based

Taxes (2)Land based taxes (3) User fees and

Charges (4)Business License. A number of

these revenues are not yet implemented by

some LGs due to lack of clarity in the law

which assigns them to levels of government,

the centre and LGs.

(9) There is no coordinated Human resources

policy framework that spells out the

structure, responsibilities and pay structure

for LG staff. Low remuneration is said to be

a disincentive for revenue collectors and consequently a low yield. Low remuneration

may also create temptations for fraud and irregularities. This increased risk call for

urgent formulation of monitoring tools and internal audit manuals and guide.

(10) Lack of clarity in the legal framework in respect to revenue responsibilities,

specifying who sets rates, who collects and who retains which source, and what level of

rates?.

(11) Local revenues such as Property tax, Markets, street parking, agricultural taxes….

do not have enabling laws to guide assessments, valuation and enforcement systems. The

absence of a law on taxation of municipal property has made prosecution of defaulters

more difficult. Neither Garowe nor Gardo for example, has had any significant cases of

prosecution of tax defaulters, despite many default cases, and the case is similar in all

municipalities in Puntland. Obscurity within the law encourages political interference,

opens doors for corrupt tendencies and default with impunity.

6 Overall municipalities in grade “A” contribute more that 70% of total budget from OSRs. Bossaso a larger

percentage in central government grants due to the additional share from the Port Authority. Gardo is a grade C

local government and therefore more dependants on CG grants.

Low remuneration may also

create temptations for fraud

and irregularities. This

increased risk call for urgent

formulation of monitoring tools

and internal audit manuals and

guide.


June 2015


(12) The enforcement mechanism of removing or locking main doors without judicial

authority has proved unpopular and besides it has no legal backing.

Conclusion of Legal framework

(1) The absence of a relationship between

transfers and local revenue collection may

be a disincentive, especially where the

transfers are significant as in the case of

Bossaso.

(2) Approved revenue sources that are

approved by Law but not yet implemented

should be collected as soon as practicable.

(3) Tariffs that are out of touch with the economic reality must be reviewed as an

immediate short term action.

(4) A transfer formula should be worked out to have a reference weight to local revenue

mobilized as a percentage of potential revenues.

(5) The LDF should include revenue in the performance criteria and provide incentives.

(6) Low remuneration and skills is having an impact on the morale of revenue monitors

and collectors.

(7) For better implementation, all revenue initiatives must be backed by a specific legal

framework, a law for property tax, Royalties, Business and land….

(8) Collection of revenue arrears is difficult to enforce in the absence of specific legal

framework on Property Taxes and other revenues

5. Enumeration and Registration

This process involves identification and registration of tax objects and individuals in a computer

based medium or hard copies of registers. Registers should show name of tax payer, location,

income liable for taxation, type of tax

For better implementation, all

revenue initiatives must be

backed by a specific legal

framework, a law for property

tax, Royalties, Business and

land….


June 2015


(1) Whereas the GIS and business registration have improved on the records, there is still a

challenge in the GIS for property. The records contain some property that is exempt,

however, attempt to isolate this are underway in Puntland.

(2) There is insufficient logistics in terms of transport and stationary and human capital

Conclusion of Enumeration and Registration

(1) GIS should be verified physically with a door to door task force so that the real taxable

property is on the roll.

(2) Train enumerators and data entry clerks

(3) Provide computers and stationary in a timely manner.

6. Assessment and Billing

This process involves determining the taxable income or

wealth income basing on approved transparent criteria or tariff

structure.

(1) The assessment criteria especially for business licenses

and land are still underdeveloped. In Garowe the

process for assessment of trading licenses is not well

refined and is exposed to costly loop holes7. Assessment is based on “value” of goods in

the shop at the time of assessment!

(2) There are no assessment committees which are representative and there is no evidence of

an appeals system except for reference to the Mayors.

(3) The absence of comprehensive street nomenclature has often delayed distribution of bills

and therefore leading to revenue arrears build up.

(4) The levels of poverty, deprivation and unemployment are high in the region and this

creates special problems in bringing a larger population to pay for the cost of service

delivery.

(5) Enforcement of compliance to pay is increasingly difficult because of the socio-political

environment.

7 The highest license id about USD 150 per year and the lowest is USD 30. Assessment is based on value of stock

displayed in shop

There is widespread

inequity and unfairness

in assessment; this

perceived unfairness may

result into quite

resistance to pay.


June 2015


(6) A large number of the population are engaged in informal trade, vending water on

donkey drawn trolleys road side Quat kiosks, roadside food stalls… and all these present

a problem in taxation because they are mobile and have no business records that can be

used for tax assessment.

(7) The tax tariff rates are considerably extremely low and out of step with the economic

reality. In Garowe, Property transfer tax of 2% is based on cost value rather than the

market value. Land premium for new plots of land is an average shs 1000-20008 as a one

off payment.

(8) Inappropriate valuation and assessments methods especially for land based taxation.

There is widespread inequity and unfairness in assessment, for example, a plot of land in

Garowe which measures 40metres by 60 metres is levied shs 140,000 irrespective of

location, gifted property is exempt from transfer tax, and residential property is rated at

shs 80 while commercial property is rated at shs 140 per square meter irrespective of

location. This perceived unfairness may result into quite refusal to pay.

(9) The GIS shows property but in a majority of cases has not been able to classify exempt

and non-exempt property and this could have the effect of indicating higher revenue

potential than would be the case if there was valuation on only taxable property.9

Conclusion on Assessment and billing

Unstructured assessment systems may result into low capture of tax objects and lower than

expected revenue volumes. The absence of an appeals tribunal may create challenges for fairness

and transparency in assessments which may result into tax payer apathy and resistance

7. Sensitization, Customer Care and Publicity

This involves activities that lead to tax payer buy-in, acceptance to pay and hence reduction of

resistance to pay with an overall result of reduced administration costs. Specific activities

include holding sensitization workshops and seminars for revenue collectors. Taxpayer

awareness campaigns on the importance of tax payments. Outputs may be radio programs, talk

shows, drama.

8 USD=20,000 shs

9 This matter was brought to the attention of HABITAT during discussions and there is a review that will take care

of this challenge.


June 2015


(1) This generally is not done on a comprehensive and structured basis although some

municipalities such as Gardo, Garowe have increased publicity using bill boards and

radio programmes and drama.

(2) There is no structured mechanism for publication of where resources come from and

where they go. However, Hergeisa intends to start a magazine and newspaper to inform

residents about resource use and encourage revenues payments.

Conclusions on Sensitization, Publicity and Customer Relations

Arising from the observations above, the following conclusions which will in turn inform the

development of the R-MAP and LRMP have been adduced;

(1) More action to improve on tax payer convenience so they don’t travel long distances in

order to pay taxes

(2) Introduce direct payments to the bank

(3) The mayor may be overwhelmed with complaints from defaulters. Therefore it may be

effective to establish a mechanism for receiving and handling public complaints

(4) Creation of a one stop centre or a complaints box will go a long way to reduce

congestion at the Mayors’ and Executive Secretaries’ Offices

(5) Develop a communication strategy championed by the MoIF

(6) Holding regular consultative meetings may reduce taxpayer apathy and collection costs

8. OSR Collection Performance and Monitoring

Collection involves activities involved in receiving revenues from taxpayer with a focus on

systems and procedures for ensuring adequate security and controls form any fraud. Monitoring

on the other hand involves activities, procedures, processes and methods used to ensure that local

government have enough revenues to finance their commitments. A process that involves

ensuring that bills are correct, issued to the right persons, collected and accounted for.

(1) Business and property Revenue is gaining significance especially due to the actions of

ILO and HABITAT respectively.

(2) Municipalities such as Bossaso have a large percentage of the budget funded by direct

sharing of customs revenues10

including a share of export taxes for livestock from these

ports. Bossaso receives 2.5% of customs duty on livestock. This may become a

disincentive to evolve new revenues in the long run.

10

The share is paid to the municipalities after every two days.


June 2015


(3) There has been significant growth in revenues especially in cases where there has been a

change in the tariff rates and better billing system, a case for Gardo and Garowe in

Puntland.

(4) Local revenue contribution to total budget is significant in municipalities averaging over

70%. Different revenue categories have varied significance between the regions.

Diagram 1: Revenue Category contribution in total OSRs 2014 shows the

significance of different revenue sources in the total budget, a reflection of

opportunities and endowment.

(5) Some tax payers evade taxes because they are not sensitized on the importance of paying

taxes. There is minimal involvement of political leaders in promoting revenues especially

property and business revenues.

(6) Low staff capacity in terms of skills and tools and low pay for revenue collectors

(7) Low logistics in terms of transport and data management. Computers are in short supply.

(8) There is no well facilitated monitoring function.

(9) Insufficient compliance audit of revenue by either the MoIF or the Auditor General.

Source: Consultant Analysis of Secondary Data: Respective LGs

0%

10%

20%

30%

40%

50%

60%

Livestock taxes Land based taxes

User Fees and Charges

Business Licenses

Garowe 10% 52% 23% 16%

Gardo 22% 25% 30% 23%

Galkacyo 32% 16% 11% 41%

A%

SH

AR

E

Diag. 1: Revenue Category contribution in total OSRs 2014 -PUNTLAND


June 2015


(10) The diagrams shows that Business and Land Taxes contribute on average is 60%

of the total Own Sourced Revenues (OSRs). The significance of the sources appears to

be on tax objects that are difficult to hide and more related to immediate earning of

income especially for animals in the market and immovable property. The local

governments also indicated that their major revenue sensitization focused on wealth in

terms of animals, land and buildings. Whereas there appears an opportunity to raise more

revenues from land taxes in the urban areas, there is still a state of low business activity

especially in lower grade local

governments and

impoverishment11

.

(11) Monitoring and

involvement of internal audit is

weak and this may be the

underlying cause of low

collection returns in many cases.

(12) OSRs growth trends varied widely from 244% for land based taxes to 7% for

commercial licenses, averaging at 51% overall growth between 2013 and 2014.

Diagrams 2: OSRs Growth Rates 2013-2014, shows how each category faired in target

local governments.

11

A quick survey within the Gardo and Garowe shows many old structures and a generally impoverished resident

population. The mission visited markets and witnessed a very low tempo of business activity. The urban areas in

Puntland show severe signs of deprivation and rundown buildings.

Monitoring and involvement of

internal audit is weak and this may

be the underlying cause of low

collection returns in many cases.


June 2015


Source: Consultant Analysis of LG Secondary Data

Diagram 3: Relative Importance of OSRs in Total Budgets 2014, below gives a graphic

representation of the relative importance of OSRs within the total budget.

-20%

0%

20%

40%

60%

80%

100%

120%

140%

Garowe Gardo Galkacyo averageLivestock taxes -8% 13% 21% 9%

Land based taxes 72% 11% 122% 69%

User Fees and Charges 107% 19% 23% 50%

Business Licenses 93% 41% 19% 51%

% O

SRs

Gro

wth

Diag. 2 OSRs Growth Rates 2013-2014 Puntland

0%

10%

20%

30%

40%

50%

60%

Livestock Land User fees LicensesGarowe 9% 51% 22% 15%

Gardo 14% 15% 18% 14%

Galkacyo 32% 15% 11% 41%

Axi

s Ti

tle

Diag. 3: Individual OSR share of Budget 2014


June 2015


Diagram 4: Total share of OSR in total budget 2014 illustrates the relative importance

of total OSRs in financing the budget 2014.


Conclusions on Collection and Monitoring

Arising from the observations above, the mission makes the following conclusions which will in

turn inform the development of the LRMP.

(1) Any significant financing for service delivery will depend on the effectiveness of

OSRs mobilization initiatives and therefore the success of the LRMP and R-MAP is

critical.

(2) Opportunities for revenue impact on the overall

budget are from property [wealth] and business.

(3) High levels of poverty diminish opportunities

for more revenues. Initiatives to tackle poverty

and enterprise growth such as LED should be

part of early actions

(4) Land and user fees present better opportunities

for faster revenue growth and improvement due

0%10%20%30%40%50%60%70%80%90%

100%

Garowe Gardo GalkacyoOSRs 97% 61% 99%

External funding 3% 39% 1%

% C

on

trib

uti

on

Diag.4 Importance of OSRs in Total Budget 2014

Any significant action to

improve revenue

management must address

the criteria for adjustments

in tariff rates as an initial

step and quick win.


June 2015


to the elastic nature of the source. Therefore initial focus should be on land based

taxes and user fees, including new sources in fees

(5) Property and livestock taxes are the most prominent source of revenues in all regions,

with livestock revenue although less prominent in Puntland.

(6) The reason for growth in municipalities such as Gardo is due to an increase in Tariffs.

By implication this makes the revision of the tariffs which are currently too low and

meaningless in some cases as a quick win which must be pursued in the short run R-

MAP.

(7) The non collection of some approved revenues has distorted the performance ranking

especially in user fees and business licenses. All revenue sources as approved should

be implemented without delay.

(8) Property tax and business tax have a higher acceptability rate and therefore a higher

opportunity for collectability. Improvement action will be better based on these

sources.

(9) Livestock revenue is less significant in the Puntland region so the focus should be on

property and business especially in municipalities such as Bossaso and Garowe.

(10) Any significant action to improve revenue management must address the criteria

for adjustments in tariff rates as an initial step.

(11) Better revenue related data capture and management such as BIMs and AIMS has

a significant resultant impact on out-turn

(12) There is a need to develop revenue monitoring tools

(13) Develop internal audit manuals and procedures focusing on revenues

(14) Develop systems of enforcement that will ensure compliance, prosecution and

controls


June 2015


9. Recording, Audit and Accountability

Recording refers to activities that will result into showing where the money came from and

where the money went. Taxpayers need downward accountability where revenue is linked to

services delivered. The LDF is one tool that will enable increased service visibility and hope

fully increasing tax payer willingness to pay. Therefore the process of auditing, creating an

assurance that all is well is another critical factor in revenue mobilization. Linking services to

revenues must be seen to done and not merely said. The emerging issues are;

(1) No systematic regular reporting, analysis and discussion of revenue performance by

council on a regular basis.

(2) There is a skills gap in the internal Audit and oversight function and no adequately

trained internal auditors.

(3) The external audit reports are not annual as would be desired

(4) There is an absence of a monitoring system and tools for such a function

(5) The court system as a means to enforce payment is seldom used, either because of the

absence of a relevant framework or due to human weakness.12

(6) Absence of policy for enforcement of tax compliance- Aggressive enforcement methods

such as removal of doors in the event of failure to pay may alienate taxpayers and could

have a political back lash!

Conclusions on Recording and Accountability

Arising from the observations above, the mission concluded that there is a need for increased

focus on activities that promote transparency and accountability. Showing where the money

comes from and where the money goes in terms of visible services and information on all aspects

of LG operations.

1) There is a general perception that service visibility is low13

except for some recent

infrastructure work under donor funding although the decentralization policy requires at

least 40% of OSRs to be spent on investments.

12

There has not been rigorous enforcement because some senior staff believe that residents are poor and unemployed. 13

Mayor of Gardo.


June 2015


2) A participatory budgeting process is at low key and this denies the population a direct

linking of revenues to services rendered.

3) There are no public accounts committees to follow up audit and monitoring queries

creating an opportunity for irregularities.

4) Data on approved revenue sources is either absent or not updated regularly

5) Registers on potential payers not updated especially property owners although a set of

books is available

6) Internal audit staff is unqualified and poorly facilitated where they exist. They have a

general basic training of secondary school level.

7) Reports and budget are not displayed for the community and other stakeholders.

8) In order to have a holistic and more structured attention to the emerging challenges,

development of a Participatory Revenue Mobilization Action Plan is critical in order

to have a measurable monitoring process and management of the challenges.

9) Whereas the trends in shilling amounts appear to be on the increase, weakness in

monitoring and audit creates an opportunity for revenue leakages. This perception of

weakness in monitoring and leakages is shared by both the centre and Municipality.

10) Establishment of an internal audit function and design of internal audit manuals is

critical

11) More support and planning for a communication strategy on revenues is critical

12) New laws to cover new revenues such as royalties, use of beaches and user fees based on

recovery of full marginal cost are a necessity

And in order that accountability is part of this LRMP, preparation of internal audit manuals

and guides including some training will be a critical success factor for the consequent

R_MAP. In the meantime, the Habitat is developing a Municipal Finance policy document

which will institutionalise some of the agreed actions through training sessions.


June 2015


10. Revenue administration- what worked and quick wins

Summary and analysis of key emerging issues.

(1) Increase in tariffs in user fees, livestock and land tax. Tariff on land was changed from the

previously fixed amount to a tariff based on area of the land and space occupied by a building.

The market value for land transfer fees was changed from cost value to market value. Whereas

the tariff is still very low, a small change creates a significant impact in revenue growth. The

overall concept and effect is to increase revenues moderately from similar number of tax objects.

The changes may appear negligible but create a significant effect from the volume of

transactions. However, these adjustments require tacit approval by the MoIF in accordance with

Law 7.14

(2) Better data management especially in the case of property tax which has to a significant

degree been supported by HABITAT with the GIS. The use of the GIS and BIMS developed

under HABITAT is said to have provided the much needed data although the full exploitation

has not been experienced. Gardo and Garowe in Puntland are yet to take full advantage of the

BIMs for both Business licenses and property tax.

(3) Structured sensitization of communities by the political leadership and staff.

Municipalities such as Gardo have a community sensitization program on revenues although it is

not well funded and not done on a regular basis. ILO has funded some revenue awareness

campaigns using media and bill boards.

(4) Reduced political interference in matters of revenue management. All municipalities

consulted indicated that the political leaders do not interfere with revenue collection. And almost

always the tariffs set and approved by councils are endorsed by the Ministry of Interior. The

Office of the Decentralization Champion in all the regions, has been very supportive and more

especially so since it is directly under the office of the Vice President.

(5) Introduction of new tax initiatives. On average not all the revenue types indicated and

approved under the laws have been implemented. Some municipalities have not only gradually

14

The Law allows for reductions and not increments unless specifically approved in writing by the Centre.


June 2015


introduced these neglected sources, but are venturing into newer areas. Land premium is another

newly introduced revenue source and is charged in some municipalities such as Garowe.

(6) Collection effectiveness is highest in property taxes because there is a record against which

measurement can be done. Whereas there is a growth of over 100% in user charges in Gardo

Municipality, it is difficult to develop an opinion on whether this is a good performance or not

unless the potential is fairly estimated..

(7) Staff remuneration and motivation is varied between municipalities and there are loud

complaints about the disparity. Garowe offer incentives to collectors and this has shown

collection improvements.

11. Local Revenue Mobilization Manual and Guide

The LRMI Manual and Guide will support all levels of Lgs in acquiring new skills in revenue

mobilization processes and to acquaint themselves with the best practices in revenue

mobilization. Furthermore, the guide will enable a structured implementation of revenue

initiatives; support development of LRMPs and R-MAPs which is critical to the overall revenue

mobilization process in the short and long term time framework. This guide aims to support the

LRMP and R-MAPs through enabling staff and

politicians to achieve the following;

1) Identify and understand the importance

the major sources of LG revenues

2) Describe the procedures for revenue

policy, sensitization, assessment,

collection, recording , monitoring and

accounting

3) Explain the roles of the stakeholders

involved in mobilization of revenue and

particularly the implementation of the LRMP and R-MAP

4) Acquaint staff and politicians on the need for performance measurement and

reporting

The LRMI Frameworks Manual

and Guide will support all levels

of LGs in acquiring new skills

in revenue mobilization

processes and to acquaint

themselves with the best

practices in revenue

mobilization.


June 2015


5) Identify best practices and experiences in revenue mobilization

6) Share other international experiences in revenue mobilization

The manual and guide is arranged in three sections and covers the following discussion issues.

(1) Local Revenue Mobilization concept

(2) Rationale for revenue mobilization

(3) Categories of OSR, meaning and legal framework

(4) OSRs Performance analysis for 2013 and 2014 in target LGs in Puntland

(5) OSR Administration Processes, challenges and solutions

(6) OSR administration best practices

(7) Principles of a good revenue system

(8) Identification and evaluation of a new revenue source

(9) Development of a LRMP and R-MAP

(10) OSR monitoring concept

(11) Revenue Collection Targets

(12) Control Systems

(13) Performance Measurement process

(14) Performance monitoring Reports

(15) Administrative and political accountability- ensuring transparency

(16) Projection of priority expenditure-linking revenues to services

(17) Other international experience

Annexure to the manual include illustrations and diagrams for revenue analysis, LRMP and R-

MAP schedules for approved OSRs, control system sample documents, monitoring tool and

Tariff structure. These will be used during training to exemplify especially the key output, the

LRMP and R-MAP.

12. Trainers Manual and Guide

Following the development of the LRMI manual and guide, it is planned that there will be roll-

out training for politicians and technical staff at the municipalities and districts. A Trainers

manual Guide and Handbook has therefore been developed to support this process.


June 2015


This manual has been specifically developed for the use of trainers who will be providing

capacity building support under the JPLG/UNCDF in the municipalities and districts under the

LRMI.

The manual provides a guide for the trainer and participants in respect to the expected activities

during training. A separate LRMI “Participants” manual and Guide has been made available

for reference of more detailed discussions on issues in the curriculum. Trainers will be expected

to make reference to the participants’ manual, which also may be used to extract notes as may be

required. As a further guide in presentation, a set of Slides has been prepared to be modified to

suit the learning environment. To optimally deliver the course content trainers will develop case

studies; obtain real situation examples so that the training is as practical as is possible. The

course is participatory and as such, trainers will be required to allocate ample time for

discussions and exercises.

This Trainers’ Manual and Guide contain group and brainstorming exercises, and illustrations. It

is intended that the Trainers will use these materials in a manner that optimally delivers the

course objectives.

This trainers’ manual is organized in session’s format and guides are designed in a manner that

promotes effective participation through discussions and the sharing of experiences by the

participants. For each session, the activities to be performed are given including the training

methods and discussion tasks. All the materials for a session are well explained in the

Participants manual and guide for revenue mobilization under a separate cover.

The expected outcome from use of this manual is expected to be;

(1) Harmonising methods and approaches to LRMI training in all respective LGs

(2) Creating a cadre that will trainers for other Lg staff

(3) Illustration of key concepts in training of adult learners and training methods

(4) Practical delivery and participatory training.

The Manual indicates the appropriate training methodology to be used in this knowledge transfer

and timing. The course is participatory and as such trainers will be required to allocate ample


June 2015


time for discussions, exercises and role plays. The Manual has the following key discussion

issues;

(1) Objectives and goals of LRMI

(2) Training Approach

(3) raining Delivery Methodology

(4) Organizing a Training Activity

(5) Training Requirements

(6) Managing a Training Activity

(7) Session Design and Planning

(8) Training Assessment and Evaluation Activity

(9) Local Revenues Concept and Legal Framework

(10) Revenue Administration process

(11) Roles of stakeholders in revenue mobilization

(12) Registrations, assessments and collection of revenue

(13) Mobilizing funds from specific revenue categories- Property, Livestock, Business

(14) Revenue Performance analysis

(15) Monitoring and performance measurement and reporting

(16) Development of the LRMP and R-MAP

(17) Revenue and expenditure projection 2015-2019

(18) Next steps

13. Workshops

Workshops which involved technical staff and politicians from LGs and the centre were held

during May and June 2015 in Addis Ababa and Hergeisa respectively. The key objectives of

these workshops were;

(1) To validate and discuss the mission findings

(2) Analyse the challenges and develop possible solutions together

(3) Discuss contents and concepts in the LRMI manual and guide

(4) Conduct a ToT for staff who will be involved in the roll out training before the close of

2015.


June 2015


(5) Have a participatory approach to development of the LRMP and R-MAP

(6) Develop a consensus on the nest step actions.

The key workshop outputs was support for the development of LRMP and R-MAP including

skills transfer for personnel who will participate in the roll out training, and a consensus on next

step actions.

14. The LRMP Concept

The LRMP and R-MAP attempt during workshops was an initial illustration of how it may be

developed and in no way was intended to result into a comprehensive plan for implementation.

The workshops gave an opportunity for politicians to give guidance of possible direction and for

then technical officers to take it up from there.

In order to ensure a higher prospect of success of the revenue mobilization initiative, there is a

need for a structured approach and sequencing of activities that will lead to overall increase in

revenue volumes and sustainability of service delivery.

A Plan helps to determine; what to be done, how, why, when, where at what cost and by whom.

The LRMP will therefore identify and align the activities that will drive the initiative to another

level in all respects. Sustainable Local Revenue Mobilization Initiatives [LRMIs] aimed at a

reduction in service delivery gaps must be initiated and led by LGs themselves.

To ensure successful LRMIs, the Plan will reflect strategies that will apply concurrently with

processes that can substantially expand the tax base, improve collection efficiency, stakeholder

participation, transparency, accountability, and direct linkage of revenues to service provision.

The R-MAP will then be derived from the LRMP by prioritizing the activities basing on

perceived benefits and costs.

The overall R-MAP strategy will start with the quick-wins in the short-term and develop into

more complex initiatives that may require changes in the legal and institutional framework.


June 2015


15. Development approach for LRMP

The development process builds on the earlier discussions and analysis of revenue administration

challenges and solutions. The Plan presents a strategy of how the challenges will be handled,

when, the timing, cost and responsible persons. Revenue mobilization initiative framework is

considered through three schematic approaches;

(1) Overall reforms in revenue administration, [revenue policy, assessment, collection,

monitoring, reporting and accountability, enforcement] in the short term,

(2) Identification of new revenue sources, [within the existing legal framework, new legal

framework] in the medium term and

(3) Activities and processes that will encourage expenditure rationalization, [waste reduction,

accountability, procurement processes]

Analysis from the mission findings and discussion in the workshops have identified that

insufficient revenue generation is most commonly the result of a combination of factors and

challenges relating to;

(1) Collection efficiency [cost of collection per shilling]

(2) Collection effectiveness, [how much of billed is collected],

(3) Tax base [what to be taxed],

(4) Tax coverage [who is paying and how much],

(5) Tax assessment [basis of tax determination],

(6) Capacity gaps [Human, space, finance]

These key parameters will be the basis for formulation of the LRMP.

LGs will therefore develop LRMP/R-MAP by identifying these challenges with each revenue

source and solutions. Based on the solutions, cost, timing and responsible persons will be

aligned with each solution activity. The sample formats for the LRMP have been provided in

the LRMI frameworks manual and guide.

The LRMP will initially focus on at least four revenue categories and on some specified sources

as a means of showing early results in the short and medium term. The longer term perspective

will build on the “Quick Wins” sources identified in this beginning phase.


June 2015


The focus during development of the LRMP will be on broadening the revenue capture on the

already highly accepted sources, adjustment of tariffs and later on new revenues sources or

those not yet functional but approved. Fundamentally, this revenue management improvement

plan will be a combination of bringing about both additional revenue streams and also

increasing revenue within existing revenue streams.

It includes revenue categories not ordinarily expected to derive substantial revenue in monetary

terms and equally revenue categories where substantial revenue is expected, in other words it

looks at actual and potential municipal revenue across the spectrum.

It will focus on what must be done, how to achieve the objective, the timing of the activities,

define the specific revenue category and the responsibility centres and where possible the cost.

Indicators on performance will relate much more to efficiency and effectiveness of

administration issues. The strategy includes short-term revenue enhancement goals, medium

term and long-term goals.

In development of the LRMP at each LG, the following steps will be desirable for a structured

and comprehensive LRMP.

1) Review of the legal framework clauses including the tariffs structure.

2) Analysis of revenue performance for 2013 and 2014 to assess the collection effectiveness

and efficiency, and importance of OSR in the total budget. Revenue data collected from

target LGs was analyzed using Ms-excel sheets.

3) Analysis of the revenue mobilization challenges and opportunities

4) Developing strategies to overcome the revenue mobilization challenges and other

bottlenecks in the revenue administration process

5) Construction of a mobilization plan activity matrix indicating; goals, activity to be

undertaken, outcome and indicator, timeline and responsible person for each activity and

event.

6) Classification of activities in the LRMP in time frames of short, medium and long term

and developing a R-MAP

7) The comprehensive and resource specific R-MAPs will be developed in a participatory

manner through workshops.

8) Presentation of LRMP for approval by Council.


June 2015


The resource specific LRMPs and R-MAPs will be finalized by the local governments

themselves through a series of workshops.

Below is a sample LRMI extract sample for planned activities to impact on Collection

effectiveness and efficiency.

16. Sample LRMP Collection and Monitoring Goal: to ensure increase in revenues to sustain service delivery by

ascertaining that what is assessed is collected and accounted for

Collection effectiveness and efficiency

Planned Activity Outcome/Output/

Indicators

Time line Responsible

Agency

Legal framework and policy on tariffs

Setting monthly revenue targets

Monitoring and analysis of monthly

revenues

Discussion of reports with council

committees

Enforcement systems

Design revenue monitoring forms

Early warning system for defaulters

Follow up on defaulters and arrears

Collection enforcement guidelines

Set cut -off date for payments

Assign specific personnel for certain

revenue sources

Information brochures Publish tariff

rates

Popularize tariffs Hold public

discussions and workshops

Create out posts for payment of revenues

Introduce direct revenue payment into

banks

Agree at least two installment payments

for property taxation

Improving taxpayer relationships and

customer service Shorten payment

procedures

Communicate the enforceable legal

codes

Review fines

Collection performance

at above 98%

Sustainability of service

delivery

Ensuring that all who

are billed pay

Increased taxpayer

convenience

Media programs

Prosecution for all

defaulters

End 2016 Mayor, CEOs


June 2015


17. Revenue Performance Projection 2015-2019 The projections are based on the following assumptions (1) New revenue sources will identified,

(2) User fees and charges will be adjusted towards fair market rates (3) Improved data

management and computerization will result into more revenue capture, (4) Training will

enhance staff and management kills, (5) Enactment of relevant legal framework will ensure

appropriate enforcement, (5) the growth rates between 2013-2014 will be the baseline and will

be sustainable.

Key assumption is that revenues from property will double in the first year of completion and

update of the GIS and BIMs and due to changes in the tariff levels there will an average 70%

growth in business permits, user fees and livestock taxes within the first year.

The Diagram 5: Gardo-Revenue forecast 2014-2018, below illustrates the possible revenue

movement beyond 2018 based on a mixture of the assumptions above. The projection is based

on growth rates between 2013 and 2014 tapering downwards as reforms are gradually

implemented. The following exponential trend could be possible for Gardo. Directors of

revenues will develop assumptions in each case basing on the R-MAP and the LRMP. In each

case these assumptions will be documented and referenced.

-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

2014 2015 2016 2017 2018 2019

Livestock taxes

Land based taxes

User Fees and Charges

Business Licenses

Total OSRs

Expon. (Total OSRs)


June 2015


Table 1: Revenue Projection2014-2019 for Gardo gives an indication of revenue growth

considering implementation of reforms, moving from hundreds to millions of revenue shillings.

Growth 2013/2014 OSRs category 2014 2015 2016 2017 2018 2019

-8% Livestock taxes 193,326 328,654 492,981 640,876 769,051 845,956

72% Land based taxes 220,213 374,362 636,416 1,018,265 1,527,397 1,985,617

107% User Fees/Charges 259,487 493,025 887,446 1,419,913 1,973,679 2,368,415

93% Business Licenses 198,947 358,105 537,157 698,304 1,047,456 1,361,693

Total OSRs 871,973 1,554,146 2,553,999 3,777,357 5,317,583 6,561,680


The diagram illustrates that Gardo may attain the 6.5 billion approximately 3.5 million USD at

today’s prices, mark by 2019.

Revenues are collected so that services are rendered. Priority expenditures will be projected

during the next phase so that a comprehensive plan for service delivery is linked to revenue

mobilization.

18. Revenue Mobilization Action Plan (R-MAP)

In order to put into effect the LRMP, activities and processes will be broken into “bite size

activities” in the form of a Revenue Mobilization Action Plan [R-MAP]. The priority in the short

term will be on what has been tested, on initiatives that will easily be supported politically and

are administratively feasible.

The R-MAP approach is to have implementation in three phases, Short, Medium and Long Term

where the short term, 0-6months, will be to focus on delivery of early results by initially looking

at quick win situations. The short term strategy will be to target what is perceived as collectable

and receivable. The comprehensive R-MAPs will be developed in a participatory manner

through workshops at the municipal and district levels to ensure ownership, commitment and

willingness to implement the plan.

Successful implementation of the R-MAP concept will deliver most of the following outcomes;

(1) Socialization of revenue planning (revenue compact)


June 2015


(2) Improved revenue administration system

(3) Socialization of revenue mobilization and decreased costs of revenue administration

(4) A participatory revenue planning process to underpin a social compact

(5) linking between an increase in revenue

collection and improvements in basic services

delivered

(6) Improved databases on taxable activities and

tax payers

(7) Improved assessment methods and techniques

(8) Improved revenue forecasting and planning

practices

(9) Client orientation- favourable customer environment

(10) Improved collection methods

(11) Increased revenues leading to improved delivery of basic services

(12) Greater transparency of revenue administration and local governance in general

(13) Institutional and regulatory reforms

(14) Establish clear links between the revenues raised to service improvements

The R-MAP brings out the specific activities that will deliver the intended outcomes as

envisaged in the Local Revenue Mobilization Initiatives Framework proposal within the short,

medium and long term periods. Increased revenues will spinoff in increased public investments

creating more resident satisfaction which then implies more willingness to pay taxes. The activity

that will break the vicious cycle of inadequate revenues is increased investment now. Therefore

without external financing, the initial stages must involve both compulsion and persuasion.

Increased revenues will spinoff

in increased public investments

creating more resident

satisfaction which then implies

more willingness to pay taxes


June 2015


19. R-MAP Sample format- collection and monitoring

Strategy and actions during planning periods

Increase Collection efficiency and effectiveness

Activity Short term [ 0-6 months] Medium [6-12 months term] Long term [12-24 months]

Legal and policy framework

Enforcement guidelines Communicate the enforceable legal codes Incentive schemes

Early warning system for defaulters Take legal actions

Consistent enforcement

Revision of tariffs

Socio-economic analysis of revised tariffs Review all tariffs Hold public discussions and workshops

Publish tariff rates Popularize tariffs

Information brochures

Monitoring systems

Setting monthly revenue targets Monitoring and analysis of monthly revenues Discussion of reports with council committees Revenue targets Internal audit manuals and guide

Design revenue monitoring forms Early warning system for defaulters Collection enforcement guidelines Publish tariff rates

Information brochures Hold public discussions Follow arrears Popularize tariffs

Reporting and Publicity

Sensitization and Improving taxpayer relationships and customer service Develop internal audit manuals and guides Participatory budget conferences Regular reporting Provided registers for each revenue source Convenience in paying

Train staff in revenue records management Provide for computerized receipts Provision of required computers Link BIMS to AIMS-collection and billing Regular Internal audit reports

Publication of financial and service information and programs Conduct public accountability surveys and meetings Upgrade recording and monitoring software


June 2015


20. Going Forward-Next steps Basing on consultations during the mission and findings during the workshops, the following

next step actions will be critical to the overall success of the next phases of the LRMI

Sn Activity/ processes Est. Time Who?

1 Translation of LRMI manuals and guides into

Somali language

July/August

2015

UNCDF

2 Develop accountability and Internal Audit Manual July/August

2015

UNCDF

Roll out of training to municipalities and districts Oct/Nov

2015

UNCDF

Complete the Municipal Finance Policy July 2015 HABITAT

3 Review tariffs and implement quick wins Oct. 2015 MoI/LGs

4 Implement new revenues identified- low hanging

fruits[ street parking]

Oct. 2015 MoI/LGs

5 Training and Skilling Internal Audit and Oversight Sept 2015 UNCDF

6 Develop and implement LED strategies Set 2015 ILO/LGs

9 Selection of a revenue steering committee at each

municipality

Nov 2015 MoI/LGs

10 Complete Review of policy and legal framework Dec 2015 UNCDF/LGs/MoI

11 Support and coaching champions for LRMP Jan 2016 UNCDF

12 Support Development of LRMP/R-MAP Jan 2016 UNCDF

13 Review and draft resource specific legal framework May 2016 MoI

14 Review organization service structure May 2016 UNCDF/MoI

15 Develop Human resources policy June 2016 ILO/MoI

16 Budget and cost rationalization, cost centre

budgeting

Sept 2016 UNCDF

17 Communication strategy Oct 2016 HABITAT

18 Develop PPP strategy Feb 2017 ILO/MoI


June 2015


21. Conclusion

The overall goal of the revenue mobilization initiative is to have an increase in revenues from all

regions of Somalia so that the quality of governance and service delivery is enhanced.

A Revenue Improvement Plan [RIP] serves as a crucial tool

for the successful management of LG revenues. Ensuring a

sound local revenue mobilization system is an essential

ingredient in actualizing fiscal decentralization. Successful

revenue mobilization creates the effect and the potential to

foster political and administrative accountability by

empowering communities and sustaining peace.

For any futuristic local government, the attraction of

exploiting to the full potential revenues and the effective

accountability of the same are paramount and key success factors. A comprehensive Revenue

Mobilization Action Plan will address how the challenges earlier identified will be managed to

result into increased revenues.

It is further hoped that action and implementation of the proposed measures will enhance local

revenues in the target local governments by more than 90% of the potential initially and

eventually 100%. With a long coastline, mineral wealth, animals, tourism attractions, LGs in

Somalia have substantial potential for enhancing local revenues especially from business

licenses, user charges and property rates.

Revenue Mobilization is quite difficult and cumbersome without computer assisted

methodologies especially in valuation billing and reporting. Therefore, the issue of automating

the revenue mobilization process should be given preferential attention by all LGs

Finally, in construction of LRMPs one of the key assumptions is that the people and governance

of target local governments are able and willing to make the necessary effort to increase the

revenue levels, and to undertake all administrative measures within an appropriate time

framework. And that the local governments will have a professional, well empowered and liable

administration with improved financial capacity.

Revenue Mobilization is

quite difficult and

cumbersome without

computer assisted

methodologies especially

in valuation billing and

reporting


June 2015


22. Appendix 1: Document Review

1. UN-JPLG LRMIP for Somalia framework proposal draft 2014

2. Puntland, State of Somalia Constitution

3. Puntland Law No 12: Investigation and suppression of financial violations

4. Municipal Finance and Public service delivery in Puntland, UN Habitat, Puntland

5. Puntland Taxation Framework 2014, MoF, Puntland State of Somalia

6. MoU: Local Development Fund for Puntland and UNCDF

7. LRMIP for Puntland, outline proposal

8. Revenue Assessment Report, Puntland, Ministry of Interior and Finance

9. Puntland Business License Tariffs, 2010, Ministry of Interior

10. Puntland: Facts and Figures


June 2015


23. Appendix: 2 PUNTLAND -Field Consultations Attendance Log Sheet

MINISTRY OF INTERIOR, FINANCE, ACCOUNTANT GENERAL 28-02-2015

PARTICIPANTS

NAMES DESIGNATION CONTACT

1 Ahmed Ada Consultant MOI [email protected]

2 Osman Ali Consultant -OAG [email protected]

3 Ahamed Noah Program Officer, UNCDF

4 Abadi Aziz Deputy Auditor General

5 Ahamed M. Hassan Accountant General +252090720679

6 Abshi M. Abshir Consultant-MoF +252907993715

7 Mohamed Abdulkadir Consultant MoI-UNCDF +252907746515

GAROWE MUNICIPALITY 01-03-2015

8 Pasim Mohamed Abdi Executive Secretary [email protected]

9 Sharmake Jema Planning Officer [email protected]

10 Maini liid Cali Revenue Officer [email protected]

11 Karim Aden Hassan Revenue Officer

12 Abdinlek Mohamed Planning Officer

13 Mohamed abdurahman Finance & Administration Consultant +252907790575

14 Mohamed Abdu Kadir MoI Consultant [email protected]

Saidi Abdi Mohamud Director -Planning dept [email protected]

GARDO MUNICIPALITY -02-03-2015

15 Mohamed Said LG Mayor +252907793770

16 Mohamed Famief Shire Executive Secretary +252907736125

17 Mohamed Abdi UNCDF Consultant +252907793454

18 Wanys Aidams Gare Finance Officer +252907736125

19 Mohamed Cussor Internal Audit +252907748370

20 Claudi Saidi Musal Internal Audit +252907736125

21 Mohamed Yusuf Finance Officer +252907736125

22 Basin Ah Jamal Director Revenues

UN HABITATAT/ILO -03-03-2015

22 Osman Mohamud Osman HABITAT [email protected]

23 Mohamed Said ILO officer [email protected]

mailto:[email protected]

mailto:[email protected]


June 2015


GALKACYO MUNICIPALITY 04-03-2015

NAMES DESIGNATION CONTACT

24 Yusuf Elmi Mohamed Director Revenues +252907757006


June 2015


24. Appendix 3: Classification of Local revenue Sources Livestock Taxes

1 Livestock Market Tax

2 Livestock-Live export taxes

3 Hides & Skins Sales Tax

Land Based Taxes

4 Property Taxes Building

5 Property Taxes Urban Land

6 Agricultural Production

7 Property Ownership Transfer fees

8 Tax on Rain fed farms

9 Irrigated Farms Tax

10 Rents from Municipal buildings

11 Rent from Markets and Shops

Charges and User fees

12 Hygiene and Sanitation ( Cess emptier)

13 Public Health sanitation Fines and Penalties

14 Stamp Duty

16 Markets traders and Hawkers dues

17 Public Transport operation permit [Annual]

18 Abattoir and butchery tax

19 Architectural Tax- Building plans approval

20 Fines and Penalties

21 Registration of Births

22 Goods and Miraw (Kat) tax

23 Electricity use tax

Business Licenses, Fees and Permits

24 Business Trading Licenses

25 Commercial Sign Boards

26 Personal Registration/Census Fees /ID Cards

27 Public Market Tax

28 Concerts and Videos

29 Sports and Open spaces


June 2015


25. ANNEXTURE ONE: Summary of field mission emerging issues

1. FINANCING TRENDS AND SERVICES

(1) CG transfers- The Puntland government provides 2.5% of national budget as transfers to

LGs. Municipalities hosting a sea Port get in addition a direct share of customs duty at

2.5% in Puntland. The grading between A to D determines the level of discretion given

in revenue collection.

(2) Services devolved- Services rendered by respective municipalities and districts are

spelled out in the Regional and Districts Law.

(3) OSR performance-Municipalities fund over 70% of the total budget (including donor

funds). Bossaso for instance is able to fund over 90%, Given that locally recruited staff

salaries are met from OSRs, there is intense pressure to sustain operations of other

services.

(4) JPLG Support-The intervention of JPLG funds has had a significant impact in

infrastructure development. Visibility of development works has an impact on the level

of willingness to pay taxes..

2. REVENUE ADMINISTRATION

(1) Legal Framework and Policy- Law No.7 must be reviewed to provide specific on

enforcement and penalties for defaults in revenues payment. There are no clear sanctions

for defaults. There are no specific laws enabling revenue collection. Specific laws for

property tax, Business license, markets, and several user fees must be made if the LGs

have to effectively assess, collect and enforce payment.

(2) Revenue policy direction - Changes in tariffs have had significant impact of revenue out

turn and appears to be room for further increase without rocking the boat. Revision of

Tariff structure is most critical as it does NOT reflect the operating environment.

(3) Taxpayer attitudes and equity- tax tribunals or appeals system not in place. Taxpayers

must consider the taxes fair and equitable. Charges levied on property and other tariffs


June 2015


are so far not being displayed. The systems of assessment are not generally understood

even by the staff a situation that may result into unfair taxation. More revenues must not

only be raised but must be fair and equitable. A system of tax tribunals must be quickly

explored before communities feel alienated and harassed

(4) Enumeration ad establishment of potential revenue- Whereas participation of

HABITAT and ILO has increased hope for a faster turn round in improving revenue

administration issues in Land based and business licenses revenues, Physical follow up

must be made to validate the GIS initiative for both business license and property. All

revenue bases must be enumerated and documented so that a fair revenue potential is

established.

(5) Sensitization and community mobilization- a key ingredient in improving tax payer

willingness besides service visibility is tax awareness education. This has been done in a

less structured way in some municipalities such as Gardo. Gardo municipality has

acquired equipment for an fm Radio station and needs money for set up and making

operational programs. They intend to use the system for both social and revenue

mobilization. A comprehensive local revenue improvement communication strategy is

urgent as a means to both popularize revenues and mobilize communities for

development and participation, and raising confidence and trust in LGs.

(6) Data management- - the level of revenue data and resource mapping is inadequate

including physical validation of the GIS and critical. This will key activity area in the

LRMIP. Data management is a critical area for all revenue categories. The intervention of

GIS has had a reprieve in property and Business license in as far as documentation is

involved. In some municipalities full advantage of the system has not been taken

advantage of.

(7) Recording and data processing- Computerization is a key ingredient in improvement of

revenue management especially on accountability and data management. The benefits of

GIs should be rolled to other revenue sources.


June 2015


(8) Assessment and revenue budget-the systems of assessment are crude which may create

opportunities for irregularity and possible taxpayer apathy. There is no structured tax

appeals tribunal or system to which taxpayers can take recourse in the event they are not

satisfied. Any complaints are made to either the mayor of the executive Secretary who is

the CEO with no involvement of any other councilor. Good local government revenue

system should keep the councilors positively engaged in the process. The level of fairness

cannot be easily determined.

(9) Collection systems- revenues are collected in cash by staff moving on foot sometimes

for more than 6 kms. Whereas there a bonus system for motivating revenue collectors,

they are generally poorly paid, average USD 50 per month, which in itself increases the

level of fiduciary risk. Overall revenue growth is above 50% between 2013 and 2014.

However, without clear understanding of the potential, it is difficult to make a comment

on the level of collection effectiveness and efficiency.

Reporting and Accountability-regular reporting is done ad discussed with councilors.

However staff will require some training in analysis and presentation of monitoring

reports. Without full engagement of the political leadership in revenue management

issues, policy direction and especially encouraging tax payment will remain a challenge.

BIMS and AIMS appear de-linked basing of complaints in both Puntland. A review may

be urgent.

(10) Enforcement and Compliance- the legal framework is insufficient to enable

penalties for revenue defaulters. Compliance has been much more on persuasion by the

Mayors and appeals to the traditional systems of encouraging debt payments. Crude

methods such as removing main doors from building have been attempted but without a

legal backing this will backfire. The system is weak and cannot sustain a robust

collection drive.

(11) Monitoring and oversight- this function is nearly absent with not support from

internal audit. The internal audit function is manned by unqualified and poorly

remunerated staff. According to the Mayor of Gardo Municipality for instance, the tax

payers are reluctant because they do not trust the politicians, services are not visible and

they see a lot of red flags pointing to impropriety in use of public resources. Revenue


June 2015


monitoring of collections is weak, a special unit, revenue Monitoring Unit, (RMU) may

be ideal at this time. A similar unit at MoI in the form of a LG Inspectorate Division is

critical if standards of revenues have to be propped up significantly.

3. ALTERNATE REVENUE SOURCES

(1) Existing approved sources-Whereas the law allows a range of over 20 revenue sources,

less than 20 of these is effectively collected. By implication there is a lot that is not taxed.

(2) New taxable sources- LGs have not generally been able to explore new areas not

specifically indicated in the Regional and Districts law. The mission suggests that the

initial focus should be on those revenues already approved by law before venturing into

new areas that may be controversial. That notwithstanding, LGs should work out bye-

laws to be approved by the ministries of Interior prior to effecting the taxes.

HUMAN RESOURCE CAPACITY

(1) Staff Remuneration- Staff capacity gaps have been made worse by lack of appropriate

skills and low remuneration15

. Low salaries cannot attract well trained personnel. Some

LGs have a clear structure for human resource management but have failed to attract and

retain the qualified personnel because of remuneration. There is a bonus system for

revenue collectors. Selective incentives for revenue collectors may create short term

gains but may result into distortions in work output elsewhere because some other may

become disorientated.

(2) Skills and Training- On average including the top administrators, the level of training is

just above secondary school. Skills training especially in; computer use, analysis,

handling taxpayers, internal audit and accounting is seriously lacking. Additional hands-

on training for staff is use of BIMS and AIMS for more effective reporting and analysis

15

Staff earn an average USD 50 p.m.


June 2015


has become critical since the earlier trained and ILO16

funded staff have left for better

pay elsewhere.

4. LOGISTICS AND OTHER CAPACITY

All municipalities have a wide logistics gap in terms of space, transport, equipment and

operational tools. The Mission is of the opinion that in the short run focus may be on data

management tools such as computers, compliance materials such as uniforms, public address

systems, affordable transport such as motor cycles and some already carbonized receipts.

16

ILO was paying each staff USD 500 while the average salary payable by Lgs now is USD70

Documents

UN JOINT PROGRAMME ON LOCAL GOVERNANCE AND …