Strategies for improving local revenue generation for development: a study of Krachi district - Ghana

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Districts in Ghana under the Local Government Act, 1993 (Act 462) and within the context of current fiscal decentralisation, have been assigned various tax sources to exploit if the districts are to develop in a more self-reliant manner. Effectively raising local revenues from these sources further puts a district in a better position to attract larger shares of the District Assemblies Common Fund (DACF), since good local responsiveness in terms of revenue generation is one criteria in the fund allocation. However, the local revenue generation performance of many districts lags far behind expected. This is basically due to poor tax administration practices and policy formulation processes. Krachi District Assembly is no exception as far as poor revenue generation is concerned. Using the district as a case study, tax administration and policy issues are examined to unravel the various bottlenecks accounting for this phenomenon, so that strategies for improvement can be designed. In this connection the study analysed available financial data of the district to ascertain the past own- source revenue performance in both nominal and real terms and the existing revenue administration procedures. The analysis was supplemented with formal and informal interviews of key District Assembly staff, other field revenue staff and sections of the public. The major revenue generation aspects examined include the existing revenue budgeting procedures, revenue collection, reporting and monitoring processes and tax formulation policy procedures. The study revealed among others that, revenues generated over the years considered have increased in nominal terms. However, in real terms they have fallen drastically. The lack of revenue data base and a comprehensive revenue collection, reporting and monitoring system contributed to high tendencies of cash leakages and under-collection and reporting of revenues. The human resource position of the district for revenue generation is inadequate in terms of numbers and quality as measured by the low level of education and training obtained by revenue collectors. There is also inadequate public participation in revenue policy formulation, collection and monitoring matters. Also, tax education of the public is absent. Practical strategies designed to address the problems identified include, (1) detail framework for the compilation of revenue collection registers at the community level, (2) comprehensive revenue reporting and monitoring system using appropriate formats respectively, and ad hoc revenue task force; and (3) mechanisms for popular participation of tax payers in revenue policy matters. Other recommendations in the form of measures necessary to implement the strategies designed have also also been provided. These include, (1) the need for systematic, progressive and discriminatory form of incentive packages for revenue collectors; (2) changes in the district expenditure pattern to reflect visible development and improvements in the living conditions of people; (3) ensuring public tax education programmes; and (4) strengthening the revenue staffing position of the district and the creation and vitalising of the District Planning Co-ordinating and the Budgeting Units in terms of personnel and logistics to oversee and monitor the implementation of strategies and recommendations made.
A thesis submitted to the Board of Postgraduate Studies, Kwame Nkrumah University of Science and Technology, Kumasi, in partial fulfilment of the requirements for the award of the Degree of Master of Science in Development Planning and Management, 1995