Kampala, Uganda | By Michael Wandati | The Government of Uganda has observed a substantial 80% surge in local revenue collection from local governments since the adoption of online and mobile payment platforms.
In 2017, the government initiated the automation of Revenue Management Systems in Local Governments, introducing a system known as the Integrated Revenue Administration System (IRAS).
The system was strategically developed to aid local governments in budgeting, revenue collection, accounting, and enhancing transparency and efficiency in local tax administration. According to the Auditor General’s report, the positive outcomes of this initiative are evident.
The report states, “I reviewed the implementation of the two revenue management systems and noted the following observations; As a result of the rollout and use of IRAS, revenue collection has increased from UGX. 31.67Bn in FY 2019/2020 to UGX. 56.35Bn in FY 2022/2023 an increment of 78 percent.”
The Integrated Revenue Administration System (IRAS) has been successfully implemented in 98 districts, 21 municipalities, and 9 cities, requiring an investment of 20.07 billion Shillings. The system has operated seamlessly, achieving significant milestones.
In addition to IRAS, the Ministry of Local Government has introduced another commendable initiative, the E-LogRev system, which is currently operational in 48 local governments.
The Auditor General’s report underscores the positive impact of E-LogRev on local revenue, showcasing a remarkable improvement from UGX 21.63 billion in the fiscal year 2019/2020 to UGX 34.17 billion in the fiscal year 2022/2023—a substantial increment of 58 percent.
Nansana Municipal Mayor Regina Nakazzi Bakitte, in an interview, emphasized the transformative effects of the new revenue system, highlighting its success in eliminating various local revenue leakages.
“Prior to the implementation of the system, revenue was susceptible to exploitation by collectors, politicians, and civil servants. However, the new system has effectively eradicated these loopholes, ensuring a transparent and direct payment process while also curbing the influence of middlemen who previously abused the revenue collection process,” Mayor Bakitte added.
Bakitte highlighted that prior to the introduction of the system, Nansana’s revenue collection stood at 1.5 billion Shillings. However, since the implementation of the new system, there has been a noteworthy increase, reaching 9.5 billion Shillings. While acknowledging the possibility of other contributing factors, she attributes this substantial rise primarily to the effectiveness of the new system.
The Mayor further noted that the system has gained recognition for its improved assessment accuracy. This is credited to the elimination of assessor discretion and mathematical errors, along with providing assistance to taxpayers in maintaining accurate records.
However, Bakitte also pointed out a downside to the system, with civil servants exploiting a loophole to manipulate revenue. The system incorporates a catalog of specified fees to pay and another category labeled “other revenue,” lacking a standard fee and clear definition for known taxes. This loophole results in lesser payments being recorded in the system.
Additionally, Bakitte acknowledged other challenges that need attention and resolution, such as the necessity for staff training on system usage and the importance of mobilizing the population to adopt it. The Auditor General also highlighted the lack of necessary equipment in local governments to facilitate the system’s utilization, impeding its effective operation. Addressing these challenges is crucial for the continued success of the revenue management system.
“I noted that 39 out of the 124 activated local governments had not been availed with sufficient gadgets such as; phones, laptops, printers, and point-of-sale machines, among others, which are useful in operating the revenue system. Similarly, all the users of E-LogRev had also not been availed with sufficient gadgets,” the report added.
Despite an overall uptick in local revenue collection, certain local governments have struggled to demonstrate improvement. An illustrative case is Masaka City, where the approved budget for the 2021/22 financial year projected a collection of 5.48 billion shillings from various local revenue sources, including trading license fees, billboards, hotel tax, property tax, local service tax, fines, and penalties.
Regrettably, Masaka City fell short of expectations, realizing only 2.45 billion shillings. In the subsequent financial year, 2022/23, the city aimed to collect 5.7 billion shillings but once again missed the mark, achieving only 3.74 billion shillings and leaving a deficit of at least 2 billion shillings.
Addressing the press on this matter, Florence Namayanja, the Mayor of Masaka City, stressed the importance of conducting a comprehensive tax valuation roll. She believed that such an initiative could provide a conclusive solution to issues of theft and misappropriation of revenues by staff.
Namayanja additionally emphasized the critical need to update the city’s assets and business register, alongside the valuation roll. According to her, this step would yield accurate statistics about the local revenue base, simplifying the process of tracking and following up on all payments. Taking these measures is seen as essential for enhancing transparency and ensuring effective revenue management in Masaka City.
Challenges of Local Revenue Collection over the years
Despite persistent efforts over the years to address the challenges faced by local governments in enhancing revenue collection, the government’s endeavors have been largely unsuccessful.
Despite various policy reforms implemented by the central government to tackle capacity gaps, incompetence, and corruption within local governments, there has been minimal progress in addressing these issues. Before the Financial Year 2016/2017, local government budgets, funded by local revenue, were authorized by the respective local governments. The funds collected from local revenues were then utilized from the General Fund Account managed at the district level.
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However, reports revealed significant leakages in local revenue, with one notable example being the absence of realistic assessments of revenue potential for markets in rural Uganda. This alone resulted in local districts losing between 25 percent to 74 percent of total revenues collected to private collectors.
In 2020, the Ministry of Finance issued a directive requiring all local government accounting officers to ensure that all local revenue is remitted back to the Consolidated Fund. This move, criticized by several local government leaders like Matia Lwanga Bwaniika of Wakiso, was perceived as undermining the powers granted to local governments under Article 176 of the Constitution.
These powers empower local governments to fulfill functions such as providing medical and educational services, managing waste, and undertaking responsibilities related to the construction, maintenance, and rehabilitation of roads, among others, as well as settling their liabilities. The ongoing struggle highlights the complexity of balancing central oversight and local autonomy in revenue management.
