Framework for a Strategy of UP Revenue Resource Mobilization Piloting

8/3/2019 Framework for a Strategy of UP Revenue Resource Mobilization Piloting

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Local Governance Support Project-

Learning and Innovation Component (LGSP-LIC)Local Government Division

Ministry of Local Government, Rural Development and Co-operatives

Government of Peoples Republic of Bangladesh (GoB)

Framework for a

Strategy of UP Revenue/Resource

Mobilisation Pilotingby

Professor Musleh Uddin Ahmed, Ph DConsultant, UP Revenue/Resource Mobilisation Piloting

January 2010


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SL Content Page

I Introduction and Background to the Assignment 1

II The Institutional Context 2

III Legal Status of UP Revenue Mobilization 4

IV UP Present Revenue Context of Bangladesh 5

a Sources of Revenue Income 5

b System of Tax Assessment 6

c Revenue Collection and its Performance 10

V Improving Tax Assessment System, Administration and CollectionProcedure

11

a. Holding Tax Assessment by Improved method of Mass-AppraisalSystem

11

b Improving Revenue Ad ministration and Collection Procedure 14

VI Rationale and Challenges of UP Revenue Strategy 17

VII Purpose and Objective of the Strategy 18

VIII Sampling of Ups for Piloting 19

IX Piloting Areas and Activities of Enhancing UP Revenue/ ResourceMobilization

20

Table 1 Holding Tax Assessment Piloting: Mass Appraisal System 12

Table - 2 Indicative Framework of UP Revenue Factors Piloting 25

Annex- 1 Action Plan for UP Revenue Mobilization Piloting 29

Annex 2 Holding Tax Assessment Register 33

A 3 C ll ti d A R d 34


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ABBREVIATIONS AND ACRONYMS

ADP Annual Development Programme

ARV Annual Rental ValueCC City Corporation

CIDA Canadian Agency for International Development

Dafadar Village Police Head

DANIDA Danish International Development Assistance

DDLG Deputy Director of Local GovernmentDF District Facilitator

DP Departmental Partners

EC European CommissionGOB Government of Bangladesh

IACD Integrated Approach for Community DevelopmentIEC Information, Education and Communication

KaBiKha Kajer Binimoya Khaidya (Food For Works)IRC International UP revenue Centre- The Netherlands

LCG Local Consultative Group

LGD Local Government Division

LGI Local Government InstitutionsMLGRDC Ministry of Local Government, Rural Development and CooperativesLGSP-LIC Local Governance Support Project Learning and Innovation Component

MDG Millennium Development GoalMoF Ministry of Finance

NSAPR National Strategy for Accelerated Poverty Reduction

NGO Non Government Organization

NGOAB NGO Affairs Bureau

PO Partner OrganizationsPRSP Poverty Reduction Strategic Paper

PWD Public Works Department

SLGDFP Sirajganj Local Governance Development Fund Project


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I. Introduction and Background to the Assignment

Bangladesh has a long history of local government and the postindependence constitution provides

for the creation of local government bodies at every administrative level. Article 59 and article 60

has given the main foundation of the role, structure and functions of local government. But in

reality, the only representative local government institution that has had a continuous existence

since the 1880s is the Union Parishad (UP), which has its limitations and resource constraints.

Bangladesh is governed by a parliamentary system of government. The country is administratively

divided into six divisions, and each division is divided into zilas (districts), totalling 64 in all. The

zilas are divided into 483 Upazilas (sub-districts), the lowest unit of administration. These Upazilas

are further divided into 4,498 unions which are not administrative unit but functioning as grass root

level local government unit where local UP revenue is entrusted to elected bodies.

A strong local government is indispensable for ensuring sustainable development, achieving the

targets of poverty alleviation, attaining the targets of millennium development goals (MDG) by2015, and developing democratic institutions in the country. Inadequate resource allocation to local

government, lack of capacity of proper tax assessment and resource mobilization, and poor

mechanism for citizen engagement lead to ineffective local government systems in most of

developing countries like Bangladesh. UNDP is strongly committed to promote effective

decentralization and a strong local government system in Bangladesh as a contribution to achieving

the MDGs.

As a part of initiative for strengthening local government system in Bangladesh, Sirajganj Local


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feed these second generation innovations into the national LGSP. The Learning and Innovation

Component (LIC) is being implemented in six different pilot districts, Barguna, Feni, Habiganj,

Narshingdi, Satkhira and Sirajganj, one from each of the six administrative divisions of the country.

388 unions under these districts will be covered progressively over the five year duration of the

project. The total budget of the project is US$ 18.118 millions and funded by UNDP, UNCDF, EC

and DANIDA.

During 2007-08, LGSP-LIC commissioned a study and some analytical work on UP own-source

revenues was conducted.1 This was aimed at gaining a better understanding of local government

taxation and revenue collection procedures, processes, constraints, and the scope for increasing such

own-source revenues. The study identified the rationale for piloting improvements in UP own-

source revenue collection. Firstly, the fiscal resources generated by UP own-source revenues are

almost entirely discretionary in nature UPs can use their tax and other revenues to finance

anything for which they have a legally-prescribed mandate. This provides UPs with the opportunityto fund expenditures which are otherwise excluded by block grants (e.g. additional part-time staff,

maintenance costs, etc.). Secondly, a key indicator of the extent to which UPs are seen by local

citizens to be providing appropriate public goods and services is (to a very large extent) how far

they are able to mobilise own-source revenues. Paying taxes is largely a function of voluntary

compliance on the part of tax-payers and that will usually reflect public satisfaction with UP

performance.

II. The Institutional Context


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new functional arenas such as micro-infrastructure, early child development, consolidated

implementation of safety net programmes, and local economy promotion. With regard to the

financing of UPs, the NSAPR envisions potential in consolidating a performance-linked second

resource channel (outside of ADP) for union parishads. Such a resource channel has already been

initiated and substantial increase in resource allocation can be planned for with due lesson-learning

from the experience so far. Importance of local government has been also recognised by National

Rural development Policy and Poverty Reduction Strategy Paper I (PRSP). Similarly, the second

PRSP underlines the roles and importance of local government to intervene the some important

areas of multi-dimensional nature of poverty.

The present government has taken some initiatives for a greater participation in local governance

and wider involvement of local government representatives. The government has passed the Local

Government (City Corporation) Act, 2009 in parliament on October 15, 2009. The Local

Government (Paurashava) Ordinance (1998) was revised in 2008 and has created further scope formore power and authority to the Pourashava bodies as well as changed the designation of Chairman

and Ward Commissioners as Mayor and Councillors. The Present Political Government passed the

Local Government (Pourashava) Act, 2009 in the parliament. The Upazila Parishad (UZP) has been

re-established after around 19 long years. The Upazila Parishadelection was held under Upazila

Parishad Ordinance 2008 promulgated by Caretaker Government. But the elected government

formed in 2009 did not ratify the ordinance of 2008; as a result, the UZP Ordinance 2008 lost the

forces of law. The Upazila Parishad Act 1998 has been freshly re-enacted and enforced with few

d t i 2009 ft 10 f i ti Th UZP Ch i d Vi Ch i d th P i h d


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III. Legal Status of UPs Revenue Mobilization

In Bangladesh, the Union Parishad is the oldest local government institution. The UP is an elected

body composed of 13 members; one from each of the nine wards, three women members (from

reserved seats one from each of three wards) and the chairman elected by the total electorate of

the UP. The Union is staffed by a full time Secretary, appointed by the Deputy Commissioner who

is head of district administration and local police (1 Dafadar and 9-12 Gram Polices). The UP

Secretary is responsible for accounting and record keeping and all kinds of registration e.g. birth,

death etc. Very recently, government has posted an Accountant cum Computer Operator at UP.

The Local Government (UP) Act, 2009 assigned it with 38 functions. The functions of UP are wide

ranging. In reality, the UPs are mostly involved in the selection and implementation of schemes,

sanitation programs (latrines), local level revenue collection, registration of births and deaths, social

safety net activities such as, distribution of relief goods and Vulnerable Group Feeding (VGF),

preparation of list of widows for pension distribution and organization of food/cash for work

activities (popularly known as Kabikha); maintenance of law and order including conflicts

resolution and administration of justice (village court). The Act also empowers the UPs to monitor

the functions and activities of the Union-level officials of the service delivery departments of the

central government and report on their performances to the higher authorities located at the Upazila.

Section 53(ii) and section 65 of the Local Government (Union Parishad) Act, 2009 mandated the

UPs to generate revenue/resources from some particular sources by imposing taxes, rates, fees, tolls


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Rules, 1960 and the Instructions of the Guidelines on Tax Assessment and Collection Strategy

issued by the Local Government Division of the Ministry of LGRDC in 2003.5

IV. Present UP Revenue Context of Bangladesh

a. Present Sources of Revenue Income

Revenue/resource mobilization is one of the major concerns for UP to deliver quality of services to

the citizens. Currently the UPs have three sources of following formal revenue income. Besides

these, UPs have many other opportunities to explore and generate revenue from optional and non-

conventional sources.

Own revenue: Own revenue consists of the holding tax (buildings and land), tax on trades,

businesses, professions, advertisement cinemas, exhibitions and vehicles, registration and

other fees, tolls, charges .fines. etc.

Shared revenue: Shared revenue includes the 1% of the land transfer tax collected by the

Land Registration office at Upazila level, 50% of market le0asing fees for one selected

market within the UP and ferry concession fees.

Transfer from central government: Transfer from central government includes the block

grant allocation at Upazila level as part of the national ADP (subsequently shared among all

UP) and the UP direct block grants; grants for salaries and administrative costs;

discretionary grants from government for development expenditure and grants/loans fromdonor funded programs/projects.

The major own sources revenue income of UPs are as follows:


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Regular transfers from central government: both the block grant direct to the UP and the

ADP grant that is managed at Upazila level;

Special transfers under various government and donor-funded programmes, such as LGSP

and LGSP-LIC.

Own and shared revenues are deposited in the UP revenue accounts which are managed by the

Chairman and the Secretary (co-signatory). The payments are executed by either the Secretary or

the Chairman and recorded in the concerned accounting books. There are no requirements for

reporting the financial statements and bills related to own and shared revenues to Upazila

Accounting Officer. The ADP block grant at the Upazila level is transferred by the Chief Accounts

Officer (CAO) of the Ministry of Local Government, Rural Development and Cooperatives to the

bank account at the Upazila level that acts as the treasury. Once the projects are approved, the

Project Implementation Committee (PIC) and Project Supervision Committee (PSC) are formed.

The Accounts Officer directly or indirectly (through the Upazila Engineer) executes the paymentsof bills. The Accounts Officer does not report back to Controller General of Accounts (CGA) Thus,

funds are never transferred to UP.

In the case of direct UP block grants introduced in 2004, the funds are transferred from the bank

that performs the treasury function at the Upazila level in four instalments in the course of the fiscal

year on the basis of UP requests countersigned by the Upazila Nirbahi Officer (UNO). At the end of

the year the UP has to provide the Accounts Officer with the receipts of payments together with a

financial statement. The last allotment is transferred only when the Accounts Officer has reconciled


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the Ministry of LGRDC in 2003, assessment should be based on the 7% of the annual value of the

property with the maximum ceiling of Taka 500 for any one property (including the land on which

the property is situated, but not agricultural land). Tax is to be assessed and levied on the basis of

the Annual Rental Value (ARV) on constructed properties, buildings (building includes any shop,

house, hut, outhouse, shed, stable or enclosure built from any material and used for any purpose) or

land (excluding agricultural land) at a rate of up to 7%. ARV can either be determined from actual

rents if the building is rented (or if it is not, from rental data for comparable buildings), or

calculated from construction costs. Regulations specify the way the tax would be calculated. Even

where the house is owner occupied, rental value can be determined based on rents for equivalent

properties. The rate of 7% of the annual rental value (ARV) can be applied to assess the holding tax

(buildings and land) for wholly let-out buildings or for wholly occupied buildings as well as partly

rented and partly occupied buildings. Where rental value data does not exist, the capital value of the

house can be estimated, using Public Works Departments (PWD) construction cost figures

converted to rental value by applying a 7.5% rate of return and adding the ground rent for the land.

The assessment is then calculated as 10/12ths of the annual rental value allowing deduction of two

months rent as the cost of maintenance, if it is rented house and also deductions of annual interest of

the loan if the house is built with bank loan. After deduction of two months rent plus annual

interest, tax would be calculated at the rate of 7% of ARV. If the house is occupied by the owner

than the provision for the deduction of further one-fourth of the rental value after deducting 2/12 ths

of the annual rental value i.e., allowing two months rent as the cost of maintenance house and also

deductions of annual interest of the loan if the house is built with bank loan before the assessment is


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official formula.6 However, in many cases this assessment are quite abbsent. In many cases,

arbitrary adjustments are made, whether on the basis of assumptions of household income or for

other reasons, so that the final assessments bear little relationship to the formula. In other places,

UPs are making much simpler assessments based on the number of rooms, type of construction and

facilities (water supply, sewerage etc.). These assessments may be sufficiently fair, especially, if

they are made in a transparent way. However, the problem with either arrangement is that

assessments are often not made systematically and adjustments for household income or poverty

may not be made transparently. As a result, there may be significant inequities in the assessment

system. This can undermine peoples trust in the system, and therefore their willingness to pay.

The calculation set out in the Ministrys 2003 guideline (but which is based on established practice

and applies also in paurshavas and cities) contains a number of anomalies. Firstly, it gives a

reduction on the assessment for the interest costs where a property is subject to a loan or mortgage.

This is not appropriate, since it creates an inequity simply according to the method of financing. Itis also likely to benefit the better off who are more likely than the poor to use loan finance for their

house. Secondly, it gives a 25% reduction for owner occupiers, on the grounds that they are not

earning income from the house. However, in principle, the type of tenure is irrelevant to the value

of the property, or to the costs to the local government of providing services to that property. This

creates an inequity between types of tenure, benefiting owner-occupiers.7 If the holding tax is to

remain the main source of UP revenue, it is suggested that these anomalies be removed.

In practice, few UPs appear to be using this method of assessment, whether for lack of


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Most UPs appear to be using a cruder system. This involves assessing houses against some general

criteria: number of rooms, size of rooms, house construction materials, provision of tube well and

toilet. Typically, this results in assessment of Taka 10-20 for a one-room house of temporary

materials to Taka 150-250 for a four roomed house of permanent materials. The resulting

assessment may also be modified by assumptions about the occupiers ability to pay. Overall, this

method of assessment may be acceptable, providing the criteria are clear and applied consistently

and transparently, for example, in a open budget meeting. In the end, what matters is not the

absolute value of the property but rather a fair distribution of the tax burden between households.

But it does require that a clear set of criteria is consistently applied and that the process is

sufficiently transparent.

Each UP is supposed to have a register of all houses8, together details of the property and the owner

or occupier and the assessed values. These lists were generally compiled more five years ago, and

are now due for revision (in one case, the register had not been revised since 1991). It was claimedthat adjustments are made each year for new houses or changes to houses. In the UPs visited, the

registers were said to have been compiled either using data from a survey conducted by students,

contracted by the UP and guided by the UP Secretary and councillors, or on a ward basis by UP

councillors themselves. In some cases, it was claimed, the registers and assessments were compiled

in public meetings. If that is so, it should ensure a degree of transparency and fairness. But there are

risks that only certain people attend such meetings, so that others are less fairly treated, although

given the very low levels of the assessments, a degree of unfairness may not be a major issue.


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at the ceiling rate of Taka 500, including a number of multi-storey blocks of rooms for garment

workers.10 Overall, the average assessment was probably around Taka 35 to Taka 50.

c. Present Revenue Collection and its Performance

Bills are not issued for holding tax. This is not surprising, given the small amounts involved and the

cost of issuing bills. Instead, either taxpayer comes to the UP office to pay or tax collectors

contracted by the UP go house-to-house to collect the tax. Payments can be in more than one

instalment (normally two). Collectors (up to one per ward, but often only one for the UP) are paid

15% commission. This commission is supposed to be paid from the bank once the money collected

has been deposited into the bank, although it seems likely that, in many cases, collectors deduct

their commission before depositing the money. Collectors are issued with a ward register of

properties and their assessed values, and with serially numbered receipt books. Every few days (or

once a receipt book is used up), the cash is deposited at the UP office, and the receipt book and

register are checked by the UP Secretary against the cash before the money is deposited in the bank.

A chronological register is also kept of all payments received, together with the number of the

receipt issued.

In the UPs where a relatively high proportion of tax assessments are recorded as being collected,

this leaves little scope for fraud or collusion. However, there are, no doubt, places where the system

is not operating properly. There could be fraud in terms of collectors pocketing the tax payment and

not issuing a receipt, or issuing fake receipts; or there could be collusion between taxpayer and

ll t t ll t i ith t i t B t l th i d f t


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require a separate exercise to check against the assessment register to identify who had not paid. In

practice, lists of defaulters are not produced for purposes of follow-up, and there is no record of

arrears. Although claims are made about follow-up action, it is doubtful if this really happens.

Collection rates are generally very low. It is likely that in most UPs, only 5% to 20% of households

are paying. This is generally explained in terms of people being poor, problems of floods, and

reluctance of elected Chairmen to take unpopular enforcement action. A few places have managed

to increase collection rates significantly. It is observed that collection rates for UPs in Sirajganj

district as a percentage of budgeted revenue, ranging from 1% to 91%. However, budgeted figures

may not reflect the full potential revenue (especially if arrears are not included), so these figures

may overstate the performance. Moreover, a significant proportion of the revenue may be paid by a

few business or institutional payers. For example, one UP visited (Gopaya in Narshingdi district)

had managed to collect around half of amount holding tax due in 2007/08, but 70% came from just

five institutional payers. The remaining 30% came from 580 other payers (17% of households),

while 83% of households paid nothing. In another UP (Nurpur), receipts were issued to 400

households (12% of the total number of households), and money received amounted to 18% of the

total assessment.

V. Improving UP Assessment System, Administration and Collection Procedure

a. Holding Tax Assessment by Improved Method of Mass-Appraisal System

What is proposed for piloting in some UPs is a simpler and more transparent assessment system,

commonly known as mass appraisal. 11. A simple table is provided in the following showing house


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Table 1:Holding Tax Assessment Piloting: Mass Appraisal System

Tax Rate: 3%

Tax in Taka High Quality Pacca Semi-Pacca Tin Roof Katcha

1 Room 150 100 80 50 30

2 Rooms 250 150 120 80 50

3 Rooms 350 220 160 110 80

4 Rooms 450 300 200 150 100

For more than 4 rooms, rate per sq.ft. (1) 15 10 7.5 5 3

Small shop or stall (up to 100 sq ft) (2) 350 220 160 110 80

UP provided Water facility on plot (3) Add 10%

OrTax Rate: 5%

Tax in Taka High Quality Pacca Semi-Pacca Tin Roof Katcha

1 Room 250 170 110 80 50

2 Rooms 420 250 200 130 80

3 Rooms 580 370 270 180 130

4 Rooms 750 500 330 250 170

For more than 4 rooms, rate per sq.ft. (1) 25 17 12.5 8 6

Small shop or stall (up to 100 sq ft) (2) 580 370 270 180 130UP provided Water facility on plot (3) Add 10%

Or


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(2) If house/building has more than one storey, consider all storeys as separate unit.

(3) For shops, industries and other businesses larger than 100 sq ft (10m 2), and multi-storey

residential blocks, either this method or annual rental value method may be used.

(4) Add 105 tax for water facility on plots means UP supplied or served water.

(4) Katcha here means mud and thatch. Tin-roof is taken as being between katcha and semi-pacca.

High quality means pucca construction with a high standard of finishing work.

Table 1 shows the assessment values at various tax rates: 3%, 5% and 7%. Tabulations for 4% and

6% could easily be prepared if required. The UP would choose which tax rate to set and therefore

which table to adopt. The assessments in the table are based on estimates of the annual rental value

using the construction cost figures produced by GoBs Public Works Department (PWB). However,

they are not precise valuations but they nevertheless provide a consistent basis for assessment.

(Precise valuations are not required, of course: what matters is consistent treatment between all

properties, so that the tax burden is distributed fairly.) One requirement for the new system to work

properly is to remove the present tax ceiling of Taka 500 per building/land (non agricultural land).

This ceiling is a serious anomaly because such a ceiling benefits only the rich and this ceiling was

introduced in 1961 about 50 years ago. Inflation has eroded the value of Taka 500, so that annual

rental values of larger properties, and particularly non-residential properties, are well above that

ceiling. A particular issue arises with multi-storey blocks of rooms, where the assessment should be

many times higher than Taka 500.12


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It should be pointed out that there are the problems of local revenue in UPs and that many of the

problems faced here are common to local governments around the world. Most of what is proposedhere is far from new14 . Much of it is about enabling UPs to implement what they are already

supposed to do, or to adopt good practices which have already been adopted in some UPs. There is

considerable scope for improving UP revenue administration. At present, in many UPs, only 10-

20% of the holding tax is collected and many businesses do not have licences. Collection of holding

tax is never likely to achieve 100% achievement because so many people are poor, but a number of

UPs have demonstrated that it is possible to increase collection performance significantly.

The following are the steps that UPs need to take in order to achieve a higher collection

performance.

a) Prepare a register of all properties in the UP, including non-domestic properties, and updatingthat register annually (see Annex -2 for a pro-forma).

b) Use the mass-appraisal system to assess all the holdings. The register, with the assessed values

should be made public so that people can see if there are anomalies, and any collusion between

assessor and household can be revealed. This will inspire public confidence that the system is

fair.15

c) At present, reductions to assessments are often made on the grounds that households are poor. It

is suggested that any reductions should be made explicitly (as per the pro-forma at Annex- 2),

id ll t d l l if ibl d d b th UP It i l t d th t th


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may have been given. This assessment register should be a public document which anyone can

consult.

d) There should be a register for payments, listing for each plot and plot owner, the final

assessment (i.e. the amount due for the current year), plus any arrears from previous years, the

amount paid in the current year (with date of payment and receipt number), and the amount still

outstanding (see Annex-3 for a sample pro-forma). Such a register enables the UP to identify

immediately who has not paid, and the amount owed, thereby enabling effective follow-up of

on-payers.

e) Tax collection for the current year should start on 1st July and be completed by 30th June.

Collections should not spill over into the following fiscal year. Any amount outstanding at 30 th

June should be recorded as an arrear to be collected the following year (with or without

penalty). This helps to clarify what should be paid and when, and helps with accounting for the

years revenue.

f) The present system of issuing receipts and recording money received in a register, with details

of the receipt number and date, appears to work reasonably well, enabling cash received to be

checked against receipts (so long as those checks are actually made). However, in addition to

(or instead of) the chronological register of cash received, revenue receipts should be recorded

in the register specified in (d) against the plot number, so that non-payers can immediately be

identified.

g) Money collected should be paid into the bank promptly after checking cash against receipts

issues. Ideally, this should be on a daily basis. Ideally, also, larger payments should be made


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probably be paid more than the 15% commission. It might also reduce the motivation to collect.

Thus, it is recommended that UPs continue to employ collectors on commission, but review

how the incentives can be augmented.

i) Spot checks by the UP Chairman or Secretary to see whether there is fraud by collectors (e.g.

not giving a receipt or giving a fake receipt). For example, selective follow-up visits to the

houses visited by collectors would reveal any fraud if households say that they have paid but do

not have a proper receipt. Rotating collectors between wards part way through the year could

have the same effect, but that would only be possible if there were several collectors.

j) Prompt follow-up action where people have not paid. Households should be visited at least one

a month for the first three months of the financial year until they have paid what is due.

k) After three months (i.e. end of September), compiling and displaying a list of defaulters (e.g. on

the UP notice board and/or in other public places), or putting notices on the houses or

defaulters; this should have the effect of shaming non-payers into paying. It would also help to

reveal any fraud by collectors or collusion between households and collectors.

l) Motivating people to pay through public information campaigns at ward and UP level,

explaining how developments already completed under LGSP-LIC and other programmes are

threatened by people not paying their tax. Such meetings may carry more weight if supported by

the UNO, so the UP Chairman should solicit the help of the UNO. Peoples willingness to pay

can also be increased through opportunities to participate in decisions about how resources are

to be used (e.g. budget prioritisation meetings), and where there is confidence that the taxes

collected are used properly, through increased transparency about resource use.


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o) A record should be maintained of payments of business tax / licences against each business in

the register (as pro-forma will be developed). This will show clearly which businesses have not

paid for the current year. Where a business has not applied for a licence by the due date (say,

30th

September), the collector should visit the business and require payment. If no payment is

forthcoming, the steps outlined above in (k), (l) and (m) should be adopted. The ultimate

sanction would be to close the business.

p) Where possible, follow-up action in relation to a business tax / licence should be integrated with

action to recover holding tax from the same property, so as not to duplicate effort.

q) Simple computerised spread-sheets can help improve revenue performance, by tabulating

clearly assessments, arrears, payments and outstanding balances. Cross-checks can easily be

made and the list of defaulters can be produced. However, UP require someone with knowledge

of computers, and preferably more than one person, to reduce the scope for fraud by the system

manager. Automatic checks should be built into the software to prevent fraudulent transactions.

Also, paper copies of all records should be maintained to reduce the risk of loss of data through

system failure or data corruption.

r) Overall performance of revenue collection can be motivated by the inclusion in any grant

system (including the LGSP-LIC grant allocations) of a performance indicator or indicators

based on revenue performance. One indicator might be that the UP has compiled a holding tax

assessment register and a business tax/licence register in the approved form. Another indicator

might be performance of collection against assessment (i.e. effectiveness what proportion of

the assessed tax has been collected). An alternative indicator might be the percentage increase in


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increasing UPs share of the Land Transfer Tax from 1% to 2%, and ensuring that the money

from this source is passed on to UPs;

giving UPs a 3% share of the Land Development Tax;

reviewing the distribution of revenues from leases on huts and bazaars to ensure a fairer

distribution;

giving local governments more discretion about local tax rates;

increasing the share of ADP (annual development program grant) for local government (as a

whole) to 10% of the national budget; Apportioning to local government a share of national taxes collected locally.

Secondly, the Government has recently promulgated a new Local Government (Union Parishad)

Act, 2009, to replace the 2003 Ordinance. This takes account of many of the recommendations of

the Local Government Committee. It is reported that it will be followed by a revision to the Model

Tax Schedule for UPs, very soon. Thus, the present study can provide a direct input into that

process.

Thirdly, Government has shown its support for UPs by channelling some block grant allocations

directly to UPs, starting from 2004. This has enabled UPs to have greater choice and control over

resources used locally. In addition, from 2008, substantial funds are being channelled through UPs

in poorer regions of the country for rural works programmes to reduce poverty.

Fourthly, the LGSP is channelling substantial resources to UPs. This programme started in 2007 in


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government is about how much to tax local residents in order to pay for the public services they

receive, so that local residents have an electoral choice about how much to be taxed for what level

of local services and how properly this tax to be assessed. The objective of the strategy areas

follows:

a) Assess current UP performance (strengths, weaknesses, complexities etc.) with regard to the

assessment, administration and collection of own-source UP revenues

b) Develop a provisional strategy for enhancing on a pilot basis the revenue base and revenue

collection performance of UPs

c) Identification of new and additional expanding revenue sources for UPs self sufficiency and

better service delivery including other local taxable income including fees, rates, charges and

fines

d) Improvements to local revenue administration procedure and collection arrangements including

proper documentation, register maintenance and collection process

e) Identification of motivational and awareness building program as well as incentive system for

own source revenue collection

f) Improvements in robust follow-up and enforcement process including monitoring and evaluation

strategy

g) Some related reforms including intergovernmental transfers, policy advocacy with government

and local financial resource management.

VIII. Sampling of UPs for Piloting


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e. Fifth UP will be selected where holding tax assessment procedure is properly followed

but the citizens are not willing/ reluctant to pay even with the UPs initiative for collection target

achievement

IX. Proposed Piloting Areas and Activities of Enhancing UP Revenue/Resource Mobilization

The capacity building of local government units especially UP is enormous as they are responsible

to manage their own affairs independently by providing service delivery with the mobilization

of own sources of revenue/resources effectively. So that it is necessary to make them able tofinance their activities through proper orientation and support. For this, LGSP-LIC conducted a

study during 2007-8 aimed at gaining a better understanding and identifications of constraints in

local government taxation system and revenue collection procedures and the scope for

enhancing UP own-sources revenues/resources. With these experiences and the current field

study/experiences, LGSP-LIC has developed a strategy paper by identifying some piloting areas

and activities for enhancing UP revenue/resource mobilization. :

Summary of the Activities of Piloting proposals below could be tested in 30 UPs.

Benchmark of piloting-The benchmark of piloting includes identifying some samples of 60 UPs for baseline survey before

starting the activities of piloting on 30 UPs of 6 LGSP-LIC districts.

For this, the baseline survey will be conducted by a firm/ NGOs and the findings will be presented

t th di i ti k h t th ti l l l Aft thi


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2. Arrange brainstorming meeting/discussion with the citizens on the mass appraisal/self

appraisal system

3. Exposure visit

For this, following things should be considered-

a. Making assessments more systematic and transparent, with any reductions on the grounds of

poverty being made explicitly and recorded transparently.

b. Clarifying that holding tax can also be levied on non-domestic property, including

structures like mobile phone masts.

c. Requiring every UP to carry out a re-assessment of holding tax over the next twelve months,

compiling a complete register of properties, together with their assessments.

Expanding the Revenue Base for UPs self- sufficiency and better service delivery

4. Arrange Training/ Workshop with elected functionaries and officials to identify

Different sources of revenue other than holding tax by introducing a training manual

5. Arrange Training/ organize discussion meeting/ open budget session to the UP elected

representative, officials, WDC members, UFT members as well as some citizens for promoting


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about the level of business taxes, with three approved levels of tax (low, medium and high) and

Requiring every UP to compile, within twelve months, a register of all businesses in their

jurisdiction

Better Revenue Administration and Collection Arrangements

7. Develop materials for Training on systematic documentation, maintenance of registers and up

dated pass book for transparent revenue administration and collection

a. technical support for effective tax collection by introducing improved assessment form in mass-

appraisal system;

b. up dated Pass book maintenance for transparent tax collection;

c. collection registers showing current years collection arrears due; record keeping for present and

arrear collection;

d. pay slip for regular tax collection; effective follow-up of non-payers, with prominent notices

displayed on the houses of defaulters (a three-stage set of notices, black, yellow, red); ande. requiring every UP to compile, within twelve months, a register of all businesses in their

jurisdiction, each with a tax assessed according to the Model Tax Schedule

8. UPs to maintain records of tax payment against assessment so that it is immediately obvious

which properties or businesses have not paid, and records of arrears can be compiled

a. Collections to start on 1st July and finish on 31st June, with any non-payments by then being

recorded as arrears.

b P t b ki i t ith l t b i d b th di tl t th


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Motivation, Awareness Campaign and Incentive System for Own-Source Revenue

Collection

11. Greater efforts to mobilise payment through information at ward-level and UP-level public

meetings, citizen participation in decisions about resource use, public display of financial

information, and proper accountability for the use of revenues, leading to greater willingness to pay.

12.. Motivational and awareness building campaign with citizens at UP and ward level for paying

tax linking better service delivery by organizing brainstorming/ discussion/ interacting meeting

with chairman, members and secretary for UPs capacity building;

13.. Awareness campaign to empower and to increase access of information through IEC strategy

to motivate tax-payers that revenues collected will be properly used to provide services that benefit

them

14. The grant system should incorporate rewards based on performance of revenue collection

against assessments (or based on increased revenue collection)

15. Introduce cash/kind award for targeted tax collection achievement to the best tax

collector/secretary/reward to the regular tax payer; introduce special

award/prizes/rewards/appreciation to the best chairman/member (public representatives) for

targeted tax collection achievement in every division and a system of appreciation to the best tax


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Policy Advocacy

a. Policy advocacy to the government and ministry level in order to influence policy

makers (i.e., LG Division of the Ministry of LGRDC) for updating the Model Tax

Schedule, 2003.

b. Advocacy, Networking, Liaison with government and local administration for

returning the right of leasing Jolmohal and Hutbazar for leasing by UP up to the

certain level of ceiling with UNO monitoring the tendering process ( now UP is

getting 20% for the salary of the UP staff, 5% to the UP where the market is located

and 45% to be deposited in the Upazila development fund to be distributed between

the UPs in the Upazila).

c. Advocacy program for increasing the IPTT tax to 2 percent from existing one percent,

enhancing the UPs share of the Land Transfer Tax from 1% to 2%, introducing 3%

(or higher) share of the Land Development Tax for UPs in return to their assistance

with mobilising the tax and to identify one possible new revenue source for UPs is a

small local tax on electricity (collected through the electricity company as a percentage

addition to the electricity bill)

d. Advocacy to appoint each UP a finance officer, with at least basic training in

accounting and financial management and to take measures that Upazila Parishads

new revenue sources should not be at the expenses of UPs revenue sources

e. Increasing transparency and reliability in the allocation of intergovernmental fiscal

transfers, with more of the transfers being paid directly to UPs and greater scope for


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25

Table 2: Indicative Framework of UP Revenue Factors for Piloting

Strategy Plan for Enhancing UP Revenue/Resource Mobilization Piloting

(National Consultant for UP Revenue Mobilization Piloting: Professor Musleh Uddin Ahmed, Ph D)

Outputs/Areas/ Themes of

Piloting

Strategic Intervention/

Activities of Piloting

Expected Result Target Group Responsibility Time Line

Description of what is being Piloted and Purpose of the Pilot and Determining Pilot Activities1. Benchmark ofPiloting

1.1Conduct Baseline Survey by Firm/NGO 1.1 Baseline Survey data made available 30 LGSP-LIC UPs, 15 LGSPUPs & 15 Non LGSP-LIC Ups

UNDP & Project March-April, 2010

1.2 Dissemination workshop on Baselinefindings

1.2 Stakeholders/Policy Planners giveninformation about the Baseline data

LGD, Development partners,UNOs, DDLGs, DFs, UCOs &some selected UP Chairman

UNDP & Project May, 2010

1.3 Inception workshop of Piloting at everyDistrict Level (01 day each in 6 LGSP-LICdistrict)

1.3 Idea generation/Brainstorming to initiateappropriate activities for piloting

Selected UP Chairman, DDLG,DCOs, UCOs, UNOs andrelated stakeholders

DDLG & DF May, 2010

1.4 Inception workshop at selected 30LGSP-LIC UP level in every six LGSP-LIC districts (01 day)

1.4 Idea generation/Brainstorming to initiateappropriate activities for piloting

Secretary, Tax Collector, WDCmember, UFTs and Community

DDLG, UCO & DF May, 2010

2. Effective andimprovedmethods of taxassessment

2.1 Manual Development for systematictax assessment by simple mass-appraisalsystem for assessing holding tax containingtransparent tax assessment procedure,

outlining categories and process fordocumentation

2.1 Improved and effective methodology ofmass-appraisal tax assessment system inplace

Secretary, Tax Collector, WDCmember & UFTs

Consultant Continue

2.1.1 Training to UP Secretary, TaxCollector, WDC member and UFTs onproper holding tax assessment

2.1.1 Tax assessment process disseminatedand related capacity of personnel involvedenhanced

Secretary, Tax Collector, WDCmember & UFTs

Consultant May, 2010

2.2 Arrange meeting/discussion to motivatethe citizen on mass appraisal/self appraisal

system of assessing UP revenue for gettingadequate services

2.2 Citizens oriented about the method oftax assessment, mentally prepared to accept

new system and appropriate documentationprocedure put in place for citizen to cross-check validity

UPPC , SSC and Citizens UCO May, 2010

2.3 Exposure Visit 2.3 On-field experiences gathered, improvesensitization and strengthening peer learning

UP Chairman, Members,Secretary, Tax Collector, WDC& SSC member, UFTs andCommunity

UCO, DF & UFT May, 2010

3. Expanding the

revenue base for

3.1 Arrange training/workshop tomotivate the UP elected functionaries,secretary and tax collector on identification

3.1 Idea developed for the importance of UPrevenue mobilization from different ownsources towards local capacity building on

UP Chairman, Members,Secretary and Tax Collector

UP Continue


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Ups self

sufficiency and

better service

delivery

of different sources of revenue other thanholding tax

revenue self sufficiency

3.2 Organize discussion meeting/openbudget session for UP functionaries and

citizens for promoting understanding of theoptional sources for wider range of UPrevenue

3.2 Understanding of roles andresponsibilities of UP towards its

community and the rights of citizens towardstheir UP improved

UP Chairman, Members,Secretary, Tax Collector, WDC

& SSC member, UFTs andCitizens

UP Continue

3.3 Organize orientation/brainstormingsession for imposing certain ceiling of feesto establish close linkage between UPsparticular service directly rendered tobeneficiaries and revenue income

3.3 Self-awareness and perception forgetting quality of services by payingrevenue timely and regularly improved

Citizens UP Continue

3.4 Introduce the classification ofbusinesses bringing all types of businessunder tax net

3.4 Quantum of tax volume enhanced LGI, UPZ, DC office, LGD &other agencies.

LGD Continue

. Better revenue

administration

and collection

arrangements

.1 Manual development on systematidocumentation and maintenance of register

for transparent and systematic revenucollection.

.1 Tax collection performance byintroducing proper assessment form, up

dated pass book maintenance, collectionregisters showing current years collection

and arrears due, record keeping for presentand arrear collection and pay slip forregular and transparent tax collection.Improved

UP Chairman, Secretary, TaxCollector & UFTs

Consultant Continue

.1.1 Training to Chairman, Secretary, Taxcollector & UFTs

.1.1 The related capacity of personnelinvolved in documentation and maintenanceof revenue collection registers enhanced

Secretary, Tax collector &UFTs

DDLG & DF June 2010

.2 Manual Development for bettercollection performance (i.e., bankingtransaction, installment basis payment)

.2 Capability for the efficient/better use ofcash book, bank transaction etc increased


Consultant Continue

.2.1 Training to Secretary, Tax Collectorand UFTs

.2.1 Tax collection performance and relatedcapacity of personnel involved enhanced


UCO & DF July 2010

.3 Introduce Public discloser mechanismfor revenue self sufficiency linked to UPscapacity building (open budget, bill board,information dissemination etc.)

.3 Actual tax collection status madeavailable with general public


UCO & DF August 2010

.4 Effective follow-up of non-payers,with notices prominently displayed on thehouses of defaulters (a three-stage set ofnotices, black, yellow, red)

.4 Number of defaulters are expected todecline

UP Secretary UP Continue


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5. Motivation andIncentive system

for own source

revenue collection

5.1 Motivational and awareness buildingcampaign for UPs capacity building withcitizens at UP and ward level for payingtax linking better service delivery byorganizing brainstorming/discussion/interacting meeting with chairman,

members and secretary

5.1 Awareness to pay tax for getting betterservice benefit and revenue capacitybuilding by achieving collection targetfulfillment created

5.1.1 Sense of responsibility and duty of

client oriented responsiveness towardscommunity increased

Chairman, Secretary, Taxcollector, WDC, UFT

UP Continue

5.2 Introduce awareness campaign to

empower and to increase access ofinformation through IEC strategy tomotivate tax-payers that revenues collectedwill be properly used to provide servicesthat benefit them

5.2 Public awareness about their rights and

duties improved, citizens perception about

tax payment made crystal clear and access

to information raised

Citizen LIC Team Continue

5.3 Introduce cash/kind award for targetedtax collection achievement to the best taxcollector/secretary

5.3 Initiatives for higher collection throughvigorous performance taken place by taxcollection functionaries

Secretary & Tax Collector UP Continue

5.4 Introduce special award/prizes/

rewards/appreciation to the bestchairman/member (public representatives)for targeted tax collection achievement inevery division

5.4 Public representatives are encouraged to

take initiatives for higher volume of taxcollection .

Chairman & Member DDLG, UCO & DF Continue

5.5 Introduce a system of appreciation tothe best tax payer at UP and ward levelduring open budget session in variousforms

5.5 Tax payers feel honoured and thusmotivated to pay more setting examples toothers

Citizen UP Continue

6. Robust follow-up and

enforcementprocess

6.1 Introduce a M&E strategy for pilotingof UP revenue mobilization through

training on M&E Strategy to DF, DDLGand UCOs

6.1 Tax collection processes are better monitored and made more accountable

DF act as facilitator,DDLG,UNO & UCO closely

involved in monitoring

Consultant Continue

6.2 Knowledge sharing on basis of periodic

monitoring and evaluation.6.2 Personnel involved are better preparedfor followup action and a more effective

and efficient mechanism developed to shareresponsibilities

DF, DDLG and UCOs LIC team Continue

6.3 Gradual introduction of simple

computerised spreadsheets formanaging and monitoring local

revenue collection.

6.3 Efficiency increased, system simplifiedand productivity enhanced

LIC Piloting UP LIC Team LIC team

7. PolicyAdvocacy

7.1 Advocacy program for national andministry level in order to influencepolicy makers (e.g., LGRD&C. LGDivision etc.) for updating the Model

7.1 Support for updating the model taxschedule incorporating some new sources ofUPs own sources revenue income mobilized

UNDP UP 2010 2011


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Tax Schedule, 2003 to at least reflectinflation since 2003.

7.2 Advocacy, Networking, Liaison withgovernment and local administration forreturning the right of leasing (Hatbazar,

Jalmohal etc)-a return of Jalmohal and Hatbazarfor leasing by UP up to the certainlevel of ceiling (with UNO monitoringthe tendering process)

7.2.1 Advocacy program for- Increasing the IPTT tax to 2 percent

from existing one percent

- Increasing the UPs share of the LandTransfer Tax from 1% to 2%:

- Introduce 3% (or higher) share of the

Land Development Tax for UPs in return totheir assistance with mobilising the tax

7.2.2 Advocacy to

- Appoint each UP a finance officer, with atleast basic training in accounting and

financial management.

- take measures that Upazila Parishadsnew revenue sources should not be at theexpenses of UPs revenue sources

7.2 UPs rights of enhancing share of ownsources revenue increased

7.2.1 Transparency and reliability in theallocation of intergovernmental fiscaltransfers with more of the transfersbeing paid directly to UPs and greaterscope for local (UP) choice about theuse of transfers increased

7.2.2 Accountability in UPs budgeting andexpenditure management, includingrealistic budget making based on therevenue that can actually be collected

with taking care of greateropportunities for citizens participationin decision making about proper use ofresource improved

Citizen

LGD

LGD

Continue

*Note: Budget, Timeline and Responsible Party would be finalized after discussion with the UNDP, LGD and Project Authority.


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capacity building (open budget, billboard, information dissemination etc.)

UP

4.4 Effective follow-up of non-payers,with notices prominently displayed onthe houses of defaulters (a three-stage set

of notices, black, yellow, red)

Consultant,DF, UFT &UP

3000

5. MotivationandIncentivesystem forown sourcerevenuecollection

5.1 Motivational and awareness buildingcampaign for UPs capacity building withcitizens at UP and ward level for payingtax linking better service delivery byorganizing brainstorming/discussion/interacting meeting with chairman,members and secretary


3000

5.2 Introduce awareness campaign toempower and to increase access ofinformation through IEC strategy tomotivate tax-payers that revenuescollected will be properly used to provideservices that benefit them


5000

5.3 Introduce cash/kind award fortargeted tax collection achievement to thebest tax collector/secretary Introducecash/kind award for targeted taxcollection achievement to the best taxcollector/secretary


5000

5.4 Introduce special award/prizes/rewards/appreciation to the bestchairman/member (publicrepresentatives) for targeted taxcollection achievement in every division


7000

5.5 Introduce a system of appreciation tothe best tax payer at UP and ward levelduring open budget session in variousforms


5000

6. Morerobust follow-up andenforcementprocess

6.1 Introduce a M&E strategy for pilotingof UP revenue mobilizat ion throughtraining on M&E Strategy to DF, DDLGand UCOs

Consultant,DF & UFT

2000

6.2 Knowledge sharing on basis of

periodic monitoring and evaluation.Consultant,DF & UFT

3000

6.3 Gradual introduction of simple Consultant, 3000


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Transfer Tax from 1% to 2%:

- Introduce 3% (or higher) share of theLand Development Tax for UPs in returnto their assistance with mobilising the tax

7.2.2 Advocacy to

- Appoint each UP a finance officer, withat least basic training in accounting andfinancial management.

- take measures that Upazila Parishadsnew revenue sources should not be at theexpenses of UPs revenue sources

*Note: Budget, Timeline and Responsible Party would be f inalized after discussion with the UNDP, LGD and Project Authority.


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Annex- 2 : Holding Tax Assessment Register

Holding Tax Rate Selected (3% / 5% / 7%) Year:

Residential Property

HoldingNumber

Name ofOccupier /

Owner

Occupation/ Income

Number of

Rooms

ConstructionType

BasicAssessment

+10% if wateron plot by UP

TotalAssessment

Reasonsfor Any

Reduction

Amountof

Reduction(%)

AdjustedAssessment

1 2 3 4 5 6 7 = 6 x 0.25 8 = 6 + 7 9 10 11 = 7-10

Non-Residential PropertyPlot

NumberName of

Occupier /

Owner

Type of

Business /

Activity

Buildin

g Size

(sq ft)

Construction

TypeConstruction

Rate (PWD

rate per sq ft)

Rental Value Or Actual

Annual Rent

x 10/12

Total Assessment

1 2 3 4 5 6 7 = 4 x 6 x 7.5% 8 9 = 7 (or 8) x tax rate

All buildings should be included, either under residential or non-residential. Mobile phone masts can also be included.

Reductions may be given for residential assessments for reasons of poverty, under the following conditions:

all reductions should be agreed by the Ward Committee and approved by the UP

the published assessment register for residential properties should indicate the reasons for the reduction (column 9)

reductions should normally be limited to 50% of the assessment

not more than 25% of the households in the ward should be given reductions


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Annex- 3: Collections and Arrears Record

Year:

Holding

Number

Name of

Occupier

Assessment Tax Due for

Current Year

Arrears Penalty (if

any)

Total Now

Due

Amount

Paid

Date Paid Receipt

Number

Amount

Still Owed

1 2 3 4 5 6 7 = 4+5+6 8 9 10 11 = 8-7

Tax Due for Current Year (column 4) taken from Holding Tax Assessment Register (Annex 3, col.11 for residential, col.9 for non-residential).

Total Now Due is the sum of Tax Due for Current Year + Arrears + Penalty (if any).

Amount Still Owed at the end of the year (column 11) = Total Now Due (column 7) minus Amount Paid (column 8); this figure becomes the figure forArrears (column 5) for the following year.

Documents

Framework for a Strategy of UP Revenue Resource Mobilization Piloting