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A CRITICAL ANALYSIS OF THE DIFFICULTIES AND PERFORMANCE OF INTERNALLY GENERATED REVENUE MOBILIZATION ( CASE STUDY OF ABURA ASEBU KWAMANKESE LOCAL LEVEL DEVELOPMENT DISTRICT ASSEMBLY, GHANA)

A CRITICAL ANALYSIS OF THE DIFFICULTIES AND PERFORMANCE OF INTERNALLY GENERATED REVENUE MOBILIZATION ( CASE STUDY OF ABURA ASEBU KWAMANKESE LOCAL LEVEL DEVELOPMENT DISTRICT ASSEMBLY, GHANA)

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INTRODUCTION

1.1 Background Of Study

Numerous African nations have initiated decentralization to strengthen the role of regional and local governments in the development process (World Bank, 1999a). The justification for this is that decentralization will boost the potential for community-level development. Decentralization is also viewed as an important instrument for aligning public spending with local priorities, enhancing management incentives, and increasing accountability to service recipients at the point of service delivery. Essentially, decentralisation will enable local governments to take care of local development efforts within their authority, based on local needs, priorities, and resources (Ikeanyionwu, 2001). Decentralisation of local government administration to the district level was a major movement in Ghana during the middle of the 1980s, with the aim of fostering local development as a means of promoting the country’s development efforts. Charles Lindblom’s 1959 thesis on incrementalism established the foundation for the adoption of decentralization. Incrementalism is diametrically opposed to invasive central planning, which can result in rigid work systems unable to adapt to real-world circumstances. According to Lindblom, incrementalism is a planning strategy that is generally employed when a huge strategic plan (such as the centralism forms of government that preceded decentralization in Ghana) has failed to develop the country, and it is sometimes referred to as “muddling through” as a result. The incrementalist theory holds that national growth can be attained at the local or grassroots level. Therefore, empowering local governments in Ghana to achieve local development would result in national development. Maintaining incremental work inside structured institutions without a central planning framework, such as the federal government, requires a degree of self-reliance, skills, and knowledge from those facing the obstacles.

In Ghana, decentralisation results in the transfer of decision-making authority and discretion from the central government to the local governments. The demand for financial resources is increased by the question of local government responsibility, which is known as fiscal decentralisation. In order for local governments to effectively carry out their responsibilities, they must have adequate income – whether generated locally or transferred from the federal government – and the ability to make expenditure decisions. Fiscal decentralization is the distribution of public funding and responsibilities to various levels of government. Both Ikeanyionwu (2001) and Bandie (2003: 4) concur that local governments should be provided with the financial resources necessary to carry out their decentralized responsibilities. Yaw-Nsiah (1997:12) defines fiscal decentralization as the transfer of authority to subnational governments to mobilize, allocate, and manage financial resources in accordance with locally specified priorities. The two primary arguments for fiscal decentralisation as a means of achieving local development are economic efficiency and local revenue mobilization (Bahl & Linn, 1992; Oates, 1993). Fiscal decentralisation focuses on bolstering local government finances and, consequently, their capacity to provide public goods and services. The goal is to grant local governments some revenue and spending control, as well as the flexibility to determine the size and structure of their expenditure budgets. Through their District Assembly, locals have the potential to mobilize internally generated funds from sources such as fees, fines, taxes, land, and licenses. Due to their familiarity with their local economy, District Assemblies will be in the greatest position to mobilize internally generated funds from the fastest-growing segments of their economic base. This will allow the local government to mobilize greater financial resources at a lesser cost than the federal government.

Thanks to fiscal decentralisation, local governments can invest in programs based on locally defined development requirements. On this basis, local inhabitants will be able to voice their desires and preferences and participate in the governance of their concerns. This method of involving the community in development activities ensures that every resource is utilized in a manner that maximizes the individual’s benefit while minimizing waste and inefficiency. Due to financial decentralisation and autonomy, the concept of decentralisation as a developmental phenomena in Ghana requires District Assemblies to generate their own resources for the development of their own territories. As a result of the legal rules, District Assemblies have access to multiple domestic tax sources for their development. This was part of a bigger plan to grant financial sovereignty to the assemblies so that they might manage their own destinies. Given that District Assemblies are accountable for the overall development of their districts and that the amount they receive from the District Assemblies Common Fund is contingent on their own internally generated resources, each district should evaluate its own efforts and performance in generating revenue. According to Article 252, subsection 2 of the 1992 Ghanaian constitution, the Ghanaian parliament shall split central government transfers to local governments based on a formula. This formula rewards high levels of domestic revenue collection with increased government transfers, and vice versa.

Particularly important to Ghana’s fiscal decentralisation are domestically created income. This is because decentralization requires local governments to generate revenue locally to augment federal transfers. In light of insufficient and late disbursement of central government transfers, the importance of internally generated resources increases (Bandie, 2003, p. 184). For instance, Solomon Boar, the Member of Parliament for Bunkurungu, asserts that the country’s District Assemblies are in shambles due to the government’s failure to distribute statutory funds earmarked for the District Assemblies’ Common Fund. Moreover, he asserts that from January to September 2013, the administrator of the District Assemblies’ Common Fund did not transfer the Common Fund to the MMDAs (myghanaonline.com/?id=1.149100). According to the theory, local governments must be financially reinforced in order to lessen their reliance on federal financial transfers and assistance (Brosio, 2000; Smoke, 2001). Consequently, the administrations of these local governments’ income collection will be more efficient, and they will be able to efficiently manage internally generated funds (Odd-Helge, 2006). The theoretical argument is that internally generated revenue is necessary for local development and to complement central government payments, but that current levels are insufficient to stimulate local development in light of the district’s expanding population and demand for development projects. To maintain a vital minimum effort in local development, a considerable infusion of locally generated funds is necessary. The Abura-AsebuKwamankese District Assembly would invest in local development with the increased collection of funds from internal sources.

However, the growth of the Abura-Asebu-Kwamankese District depends on the quantity of revenue generated. The current level of revenue allocated to the District Assembly is insufficient to stimulate local growth. If local growth 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 must be put in revenue mobilization, according to the critical minimum theory. This can be achieved by increasing the quantity of domestic revenue generated. By legislative instrument, the Mfantseman, Ajumako, and Akumfi Local Councils were separated from the Abura-Asebu-Kwamankese District Assembly in 1984. (LI 1381). The Abura-Asebu-Kwamankese District Assembly was founded to enable individuals within the Assembly’s authority improve their quality of life through the provision of equitable goods and services for the district’s overall development and the maintenance of good governance. The Abura-Asebu-Kwamankese District Assembly, like all other District Assemblies in Ghana, was established by the constitution to be fiscally stable by raising funds locally for local development in addition to receiving central government transfers (Kokor & Kroés). The Abura-Asebu-Kwamankese District Assembly, like all other District Assemblies in Ghana, was constitutionally established to be financially self-sufficient in order to improve the quality of life of its citizens by mobilizing physical and financial resources to deliver social services. On the other hand, the Abura-Asebu-Kwamankese District Assembly’s local earnings are insufficient to cover administrative and other recurring expenses, let alone the delivery and operation of key infrastructure and services that directly benefit citizens (Adom, 2000; King, Azeem, Abbey, Boateng & Mevuta, 2003; Nicol, 2005). Low amounts of locally generated funds have hindered the District Assembly’s capacity to implement programs to enhance the living conditions of its citizens (Adom, 2000; King, Azeem, Abbey, Boateng & Mevuta, 2003; Nicol, 2005). Others contend that the presence of central government payments has made local administrations complacent in their efforts to raise locally generated funds (Adom, 2000; Adedokun, 2006; Bandie, 2003).

1.2 Statement Of Problem

Numerous municipalities are financially constrained and rely on federal financial assistance and transfers (Brosio, 2000; Smoke, 2001). In addition, revenue collection administrations are typically inefficient, and vast quantities of money are regularly mismanaged (Odd-7 Helge, 2006). On the revenue side, Smoke (2001) identified four particularly important challenges. Initially, assigned revenue is almost never sufficient to fulfill local consumption requirements. This calls for the establishment of central government transfer schemes. Second, local governments usually rely on an excessive number of inefficient revenue sources that barely meet collection costs. Third, the income side suffers from the same lack of focus and implementation capacity. Individual local revenue sources, on the other hand, have significant design faults, such as stagnating bases, overly convoluted structures, and inadequate collection techniques.

This law applies to the Abura-Asebu-Kwamankese District Assembly as well. The income records of the Abura-Asebu-Kwamankese District Assembly suggest an issue with unrealistic revenue projections and low internal revenue mobilization. For instance, the revenue data for the fiscal year ending in December 2009 demonstrates a considerable mismatch between revenue provision (target) and actual revenue mobilization for important revenue categories. Only four of the seven potential revenue sources accessible to the District were realized, while the remaining three, representing more than half of the potential revenue sources, were not. Moreover, it is evident that the amounts of mobilization from the various actual sources of income were low. In 2009, according to the Abura-AsebuKwamankese District’s Annual Estimate for 2010, property taxes increased by GH31,630. 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 rather than the reported GH31,630.

The Assembly has been unable to fully implement the activities and programs outlined in its five-year Medium-Term Development Plan due to a lack of funding (MTDP). As a result of judicial decisions, the district’s District Assemblies Common Funds (DACF) were blocked during the fourth quarter of 2009. (Mattjalk Ltd V. Abura-Asebu-Kwamankese District Assembly, May 12, 2009). In contrast, the majority of development initiatives performed by the Abura-Asebu-Kwamankese District Assembly have ceased due to a lack of funds and an overreliance on the DACF. Historically, the District Assembly has relied on the DACF to meet its financial obligations. According to the composite budget of the Abura-Asebu-Kwamankese District Assembly (2012, p.12), DACF accounts for 95.4% of the district’s total revenue. This conundrum has compelled the completion of this study examining the performance and obstacles of the AburaAsebu-Kwamankese District Assembly’s locally generated funds for local development.

1.3 Objective of study

The key aims of this study are as follows:

1.To analyze the District Assembly’s revenue structure from 2005 to 2010;

From 2005 to 2010, evaluate the success of internally generated revenue;
3.To examine the relationship between actual and estimated mobilization of internally generated revenue from 2005 to 2010;

Examine the district’s difficulties in mobilizing internally generated money;

1.4 Research Question

The following research question guides the present investigation:

1.From 2005 to 2010, what was the revenue structure of the Abura-Asebu-Kwamankese District Assembly?

From 2005 to 2010, how have internally produced revenues performed in the Abura-Asebu Kwamankese District?
How do real and estimated internally generated revenue in the Abura-Asebu-Kwamankese District compare?
What obstacles restrict the mobilization of internally generated revenue in the Abura-Asebu-Kwamankese District?

1.5 Significance of study

The study has the potential to benefit numerous parties. Decentralization has become a national development goal through the numerous District, Municipal, and Metropolitan Assemblies, with a focus on locally generated money to meet the subnational governments’ service delivery responsibilities. The findings and recommendations of the study would be of great assistance to the Abura-Asebu-Kwamankese District Assembly in its efforts to increase revenue. The study expanded on prior studies and added some new information and insight, although it is by no means exhaustive.

Residents of the Abura-Asebu-Kwamankese District would benefit from upgraded schools, roads, health, water, and sanitation facilities. The rationale for this is that the financial status of the District Assembly will improve. With the available funding, socioeconomic infrastructure will be provided.

1.6 Scope of study

Geographically, the focus of the study is on the Abura-Asebu-Kwamankese District’s locally generated revenue and associated issues. The study will also concentrate on the fiscal decentralization aspect of the philosophy of decentralization. The focus of the study is the District Assembly’s domestically generated revenue in connection to its contribution to its local level development expenditures.

1.7 Limitation of study

During the course of the investigation, the researchers were hindered by insufficient funds, insufficient resources, and a lack of time.

1.8 Definition of terms

Internally Generated Revenue The capacity of local government to generate internal money is a vital factor in establishing a local council.

A CRITICAL ANALYSIS OF THE DIFFICULTIES AND PERFORMANCE OF INTERNALLY GENERATED REVENUE MOBILIZATION ( CASE STUDY OF ABURA ASEBU KWAMANKESE LOCAL LEVEL DEVELOPMENT DISTRICT ASSEMBLY, GHANA)

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