A Critical Investigation of the Challenges and Performance of Internally Generated Revenue Mobilisation ( Case Study of Abura Asebu Kwamankese Local Loevel Development District Assembly, Ghana)
1.1 Background Of Study
Many African countries have begun to decentralize in order to improve the role of regional and local governments in development (World Bank, 1999a). The rationale for this is that decentralization will improve the prospects of development at the community level. Decentralisation is also seen as an important tool for aligning public spending with local priorities, strengthening management incentives, and increasing accountability to users at the site of service delivery. In a nutshell, decentralisation will allow local governments to take charge of local development initiatives within their jurisdiction, based on local requirements, priorities, and resources (Ikeanyionwu, 2001). The decentralisation of local government administration to the district level was a major movement in Ghana in the mid-1980s, with the goal of encouraging local development as a way to promote the country’s development efforts. The acceptance of decentralisation was based on Charles Lindblom’s incrementalism thesis, which he formulated in 1959. Incrementalism is the polar opposite of intrusive central planning, which can result in rigid work systems incapable of dealing with real-world situations. According to Lindblom, incrementalism is a planning methodology that is typically used when a large strategic plan (such as the centralism forms of government that preceded decentralisation in Ghana) has failed to develop the country, and it is often referred to as “muddling through” because of this. According to the incrementalist idea, national development can be realized at the local or grass-roots level. As a result, empowering Ghana’s local governments to accomplish local development would result in national development. Incremental work is difficult to maintain inside structured systems without a central planning framework, such as the central government, and hence demands a degree of self-reliance, abilities, and expertise from individuals dealing with the challenges.
Decentralisation in Ghana results in a shift of decision-making responsibility and discretion from the central government to the local governments. The issue of local government accountability raises the demand for financial resources, which is referred to as fiscal decentralisation. The reasoning is that in order for local governments to properly carry out their tasks, they must have sufficient income – produced locally and/or transferred from the central government – as well as the authority to make expenditure decisions. Fiscal decentralization refers to the process of distributing public funds and responsibilities to different levels of government. Ikeanyionwu (2001) and Bandie (2003: 4) agree that local governments should be given the financial resources to carry out their decentralized tasks. Fiscal decentralisation is defined by Yaw-Nsiah (1997:12) as the transfer of power to sub-national governments to mobilize, allot, and manage financial resources according to locally established priorities. Economic efficiency and local revenue mobilization are the two key arguments for fiscal decentralisation as a way of attaining local development (Bahl & Linn, 1992; Oates, 1993). Fiscal decentralisation focuses on strengthening local government finances and, as a result, their ability to provide public goods and services. The objective is to provide local governments with some revenue and spending authority, as well as the ability to decide on the size and structure of their expenditure budgets. Local people have the opportunity to mobilize internally generated funds from sources such as rates, penalties, taxes, land, and licenses through their District Assembly. The District Assemblies will be in the best position to mobilize internally produced revenues from the fast-growing sections of their economic base because they are conversant with their local economy. The local government will be able to mobilize more financial resources at a lower cost than the central government as a result of this.
Local governments, on the other hand, can invest in initiatives based on locally identified development requirements thanks to fiscal decentralisation. Local residents will be able to express their wants and preferences, as well as engage in the governance of their affairs, in this way. This approach of including the community in development initiatives ensures that every resource is deployed properly to best benefit each individual while minimizing waste and inefficiency. In Ghana, the notion of decentralisation as a developmental phenomenon demands the District Assemblies to create their own resources for their developmental operations within their geographical territories, thanks to financial decentralisation and autonomy. As a result of the legal provisions, the District Assemblies are allotted several tax sources to tap domestically for their development. This was part of a larger scheme to give the assemblies financial autonomy so that they could control their own destiny. Given that the District Assemblies are responsible for the overall development of their districts, and that whatever amount they receive from the District Assemblies Common Fund will be contingent on their own internally generated resources, each district should examine its own revenue generation efforts and performance. The parliament of Ghana shall divide central government transfers to local governments based on a formula, according to Article 252, subsection 2 of the 1992 constitution of Ghana. This formula rewards high internal revenue collection with greater transfers from the government, and vice versa.
Internally produced revenues, in particular, constitute a crucial feature of Ghana’s fiscal decentralisation. This is because decentralization necessitates local governments raising revenue locally to supplement transfers from the federal government. When viewed in the context of insufficient and late disbursement of central government transfers, the necessity of internally generated resources becomes even more critical (Bandie, 2003, p. 184). For example, Solomon Boar, the Member of Parliament for Bunkurungu, claims that the country’s District Assemblies are crawling because the government has yet to distribute statutory money intended for the District Assemblies’ Common Fund. He further claims that from January to September 2013, the administrator of the District Assemblies’ Common Fund did not send the Common Fund to the MMDAs (myghanaonline.com/?id=1.1491002). Local governments, according to the idea, need to be financially strengthened in order to reduce their reliance on financial transfers and help from the federal government (Brosio, 2000; Smoke, 2001). As a result, revenue collection administrations in these local governments will be more efficient, and they will be able to effectively handle internally generated money (Odd-Helge, 2006). The theoretical argument is that internally generated revenue is required to achieve local development and supplement central government payments, but that existing levels are insufficient to encourage local development in light of the district’s growing population and need for development projects. To sustain a vital minimum effort in local growth, a substantial push in internally generated money is required. Increased revenue collection from internal sources will be used by the Abura-AsebuKwamankese District Assembly to invest in local development.
The growth of the Abura-Asebu-Kwamankese District, on the other hand, is contingent on the amount of revenue generated. The existing level of revenue given to the District Assembly is insufficient to spur development at the local level. According to critical minimum theory, if local development in the Abura-Asebu-Kwamankese district is to be sustained without reverting to its previous low level of internally generated revenue, a minimal amount of effort in revenue mobilization must be expended. This can be accomplished by increasing the amount of revenue generated domestically. In 1984, the Mfantseman, Ajumako, and Akumfi Local Councils were carved out of the Abura-Asebu-Kwamankese District Assembly by a legislative instrument (LI 1381). The Abura-Asebu-Kwamankese District Assembly was established to help people in the Assembly’s jurisdiction enhance their quality of life by providing equitable goods and services for the district’s overall development while maintaining good governance. The Abura-Asebu-Kwamankese District Assembly, like any other District Assembly in Ghana, was constitutionally created to be financially sound by raising funds locally for local development in addition to central government transfers (Kokor & Kroés). With a vision of improving the quality of life of its people by mobilizing physical and financial resources to provide socioeconomic services, the Abura-Asebu-Kwamankese District Assembly, like any other District Assembly in Ghana, was constitutionally created to be financially self-supporting. Local revenues generated by the Abura-Asebu-Kwamankese District Assembly, on the other hand, are insufficient to fund administrative and other recurring expenses, let alone finance the delivery and operation of essential infrastructure and services that directly benefit residents (Adom, 2000; King, Azeem, Abbey, Boateng & Mevuta, 2003; Nicol, 2005). The District Assembly’s ability to undertake development initiatives to improve the living standards of its residents has been hampered by low levels of locally generated money (Adom, 2000; King, Azeem, Abbey, Boateng & Mevuta, 2003; Nicol, 2005). Others believe that the presence of central government payments has caused local governments to become complacent in their efforts to mobilize internally produced money (Adom, 2000; Adedokun, 2006; Bandie, 2003).
1.2 Statement Of Problem
Many towns are financially strapped and rely on federal financial transfers and help (Brosio, 2000; Smoke, 2001). Furthermore, revenue collecting administrations are frequently ineffective, and enormous sums of money collected are mismanaged (Odd-7 Helge, 2006). On the revenue side, Smoke (2001) identified four issues that are particularly significant. To begin with, assigned income is generally never sufficient to cover local expenditure needs. This necessitates the implementation of central government transfer programs. Second, local governments frequently employ an excessive number of ineffective revenue streams that barely cover the cost of collection. Third, the income side suffers from the same lack of attention and capacity for implementation. Individual local revenue sources, on the other hand, suffer from major design flaws such as stagnant bases, unnecessarily complicated structures, and poor collection procedures.
The Abura-Asebu-Kwamankese District Assembly is no exception to this rule. The Abura-Asebu-Kwamankese District Assembly’s income records reveal an issue with unrealistic revenue targets and low internally generated revenue mobilization. For example, revenue data for the year ending December 2009 reveals a significant disparity between revenue provision (goal) and actual revenue mobilized for key revenue categories. Only four of the seven revenue items available to the District were realized, and the remaining three, accounting for over half of the revenue items, were not. It’s also clear that the levels of mobilization from the various actual income items realized were modest. For example, data from the Abura-AsebuKwamankese District’s Annual Estimate for 2010 show that GH31,630 was raised from property rates in 2009. However, a simple analysis of the 111,329 houses (estimated from the Population and Houses Census, 2005) currently available in the district multiplied by the minimum amount among the property rates of 8 GH4.00 (Abura-Asebu-Kwamankese District, 2009) should yield GH445,316, not GH31,630, as reported
Because of a lack of money, the Assembly has been unable to fully implement the initiatives and programs described in its five-year Medium-Term Development Plan (MTDP). The issue worsened when the district’s District Assemblies Common Funds (DACF) were blocked for the fourth quarter of 2009 as a consequence of legal decisions (Mattjalk Ltd V. Abura-Asebu-Kwamankese District Assembly, May 12, 2009). Most development projects undertaken by the Abura-Asebu-Kwamankese District Assembly, on the other hand, have come to a halt due to a lack of funding and an over-reliance on the DACF. The District Assembly has always relied on the DACF to meet its financial obligations. According to the Abura-Asebu-Kwamankese District Assembly’s composite budget (2012, p.12), DACF contributes 95.4 percent of the district’s total revenue. This dilemma has necessitated the completion of this study to examine the performance and challenges of the AburaAsebu-Kwamankese District Assembly’s internally generated money for local development.
1.3 Objective of study
The following are primary objectives of this study:
1.To examine the revenue structure of the District Assembly from 2005 to 2010;
- To analyse the performance of internally generated revenue from 2005 to 2010;
3.To analyse the relationship between actual and estimated internally generated revenue mobilisation from 2005-2010;
- To examine the internally generated revenue mobilisation challenges in the district;
1.4 Research Question
The following research question guides this study:
1.What is the structure of revenue of the Abura-Asebu-Kwamankese District Assembly from 2005 to 2010?
- How has internally generated revenue performed in the Abura-Asebu Kwamankese District from 2005 to 2010?
- What is the relationship between actual and estimated internally generated revenue in the Abura-Asebu-Kwamankese District?
- What challenges impede internally generated revenue mobilisation in the Abura-Asebu-Kwamankese District?
1.4 Significance of study
The study has the potential to help a wide range of stakeholders. The study is significant because decentralisation has become a national development objective through the numerous District, Municipal, and Metropolitan Assemblies, with a focus on locally produced funds to meet the sub-national governments’ service delivery tasks. The study would benefit the Abura-Asebu-Kwamankese District Assembly in particular, as the findings and recommendations would go a long way toward assisting it in its revenue generation endeavors. The study expanded on previous research and contributed some new information and understanding, although it is far from complete.
Residents of the Abura-Asebu-Kwamankese District would benefit from improved infrastructure, including schools, roads, health, water, and sanitation. The rationale for this is that the District Assembly’s financial situation will improve. The provision of socioeconomic infrastructure will be financed with available funds.
1.5 Scope of study
Geographically, the study focus on the Abura-Asebu-Kwamankese District’s internally generated revenue and related challenges. The study will also focus on the fiscal decentralization element of decentralization in theory. The study’s subject area is the District Assembly’s domestically generated revenue in relation to its contribution to the District Assembly’s local level development spending.
1.6 Limitation of study
Finance,inadequate materials and time constraint were the challenges the researchers encountered during the course of the study.
1.7 Definition of terms
Internally Generated Revenue: Internally generated revenue (IGR) is the revenue that the local government generates within the area of its jurisdiction. The capacity of local government to generate revenue internally is one very crucial consideration for the creation of a local council.
REVIEW OF LITERATURE
Our focus in this chapter is to critically examine relevant literature that would assist in explaining the research problem and furthermore recognize the efforts of scholars who had previously contributed immensely to similar research. The chapter intends to deepen the understanding of the study and close the perceived gaps.