Metropolitan, Municipal and District Assemblies (MMDAs) in Ghana largely rely on national fiscal transfers from the central government for the development of their territorial jurisdictions. However, reliance on such central government transfers has been found to be insufficient for the Assemblies to discharge the full scope of their responsibilities. The Assemblies’ dependence on the central government for development resources is largely attributable to a number of factors: shallow fiscal decentralisation, weak capacity to mobilise Internally Generated Funds (IGF), and Citizens’ low compliance with local level tax and non-tax revenue mobilisation initiatives of the MMDAs. The general objective of Ghana’s decentralization policy is to fundamentally transform society by empowering citizens to take charge of their development agenda to improve their livelihoods. This is primarily geared towards poverty reduction through promotion of production and related activities in order to raise people’s income and material well-being.

The actualisation of this objective, on the supply side, rests on the extent to which the Assemblies can mobilise sufficient resources to meet the needs and aspiration of citizens. On the demand side, it depends on the extent to which citizens fulfil their tax obligations.  Unfortunately, majority of the Assemblies are not mobilising enough revenues and many citizens do not fulfil their tax obligations thus limiting the potential of the MMDAs to improve on the provision of services to citizens. 

 

This has created the imperatives for the exploration of measures to tap the full potential of the Assemblies to increase the mobilisation of IGFs to augment transfers from the central government. However, the way and manner many of the MMDAs are managing the utilisation of the IGF is in itself a contributory factor that lowers level of citizens’ compliance with their tax obligations. Currently, management of IGF is characterised by weak accountability and transparency as well as low or no participation of citizens. This is largely due to a lack of clarity of policy direction regarding the use of IGF. The MMDAs often assume the funds as “their money” and can therefore use it without being accountable to citizens.  As part of processes of reforming the Public Financial Management system and deepening fiscal decentralisation in Ghana, a proposal has been put forward for the development of a comprehensive policy framework for the management of IGF.  It is envisaged that citizens have rights and responsibilities in the management of local revenues. This article provides the context for the recognition of citizens’ socio-economic, cultural and civic rights in the development of a comprehensive strategic framework for the management of IGF by the MMDAs. This recognition is critical to exacting the fulfilment of citizens’ civic responsibilities and tax obligations to their MMDAs. The article thus provides recommendations on the content of the proposed strategic framework in so far as the rights and responsibilities of citizens in the management of IGF are concerned.  

 

A core argument supporting decentralization is that it can generate considerable financial, efficient and quality gains by devolving resources and decision-making powers to local governments for the delivery of services.  The fundamental objective of Ghana’s fiscal decentralization practice is seeking to guarantee that the transfer of financial resources from central government to MMDAs and the mobilisation of domestic revenue by the same local government authorities are accompanied by sufficient autonomy to allocate these resources. Within this framework, fiscal decentralization is conceptualized as the empowerment of communities and citizens by financially strengthening their respective MMDAs. Also, it involves entrusting the MMDAs with the authority and capacity to generate (raising tax and non-tax revenue), allocate and utilize financial resources to promote socio-economic development.

 

Fiscal decentralization, however, is not only about the transfer of resources to the Assemblies. The current practice largely accentuates how the capacities of the MMDAs are improved to raise tax and non-tax revenues without cognisance of how citizens can participate in the governance of IGF. This is a major defect. Rather, fiscal decentralisation should also focus on the extent to which citizens participate in the mobilisation and utilisation of revenues of the Assemblies. After all, the extensive devolution of powers, through decentralisation, is intended to improve service delivery by shifting responsibility for policy implementation to the local beneficiaries themselves and to promote good governance by placing emphasis on transparency and accountability in the management of resources by the MMDAs. In effect, Ghana’s fiscal decentralisation processes should seek to democratize society by promoting inclusive, representative and gender-sensitive decision-making at the level of the MMDAs. This means citizens should be involved in the decisions concerning the mobilisation and utilisation of revenue and to ensure that income and other resources of the Assembly is utilised in a very transparent and equitable manner for the general benefit of all citizens. It should be considered in the context of safeguarding and promoting the rights of citizens. 

 

 

The sources of IGF to the MMDAs include rents, taxes property rates, licences and fees among others. The MMDAs have sufficient power derived from the national Constitution to raise local tax and non-tax revenues. In addition, most MMDAs rely on sub-national legislations and Assemblies’ bye-laws for the management of internally generated revenues. The general trend is that the MMDAs are raising limited revenues from local taxes or licences for businesses. Given the low mobilisation of IGF many Assemblies are dependent on external resources such as the District Assembly Common Fund (DACF) and District Wide Assistance Programme (DWAP) to provide services to citizens. Low IGF mobilisation by the Assemblies undermines their fiscal autonomy and decision-making systems since it increases their reliance on “external inflows” for development initiatives. These external inflows are unpredictable and when they come at all, they do not come in good time thereby affecting the timely delivery of development interventions. Central to Ghana’s fiscal decentralization is the degree of financial autonomy of District Assemblies versus dependence on central transfers. The Financial Autonomy Index (FAI) (which is the ratio of the IGF to total income) of majority of the Assemblies gives a worrying trend. Notwithstanding, many studies have demonstrated that there is, at least, reasonable potential for growth in Assemblies IGF revenues in the medium to long-term using approved mechanisms.

 

 

 

Article 251 (2) of the Constitution provides that the emoluments of a Presiding Member and other Assembly Members are determined by the District Assembly, and paid out of the IGF. Again, Section 31 (1) (a) and (b) of Legislative Instrument (LI) 1589 requires MMDAs to give up to 50% of IGFs to the Sub District Structures (SDS) of the Assemblies  for their own operations. In addition, locally recruited staffs of the Assemblies are paid from IGF. 

 

Aside salaries of local staff and sitting allowances of Assembly Members, IGF is mainly spent on recurrent expenditure such as communication, fuel, electricity, and stationery among others. This practice is problematic because the utilisation of IGF is left to Assemblies. Indeed the MMDAs consider IGF receipts as windfall revenues and citizens do not have the right to question public officials at the Assembly about how and what IGF receipts are. Only a limited number of the MMDAs have applied IGF as counterpart funding for most DACF projects. This is characteristic of Assemblies benefiting from Mineral Development Fund. Generally, citizens recognise IGF as Assembly money. Majority of them are of the view that no benefit of IGF accrues to them. This is so because the MMDAs have ‘discretionary power’ to utilise IGF in a way that is not promote accountability. This situation has thus led to disillusion among citizens thereby wrongfully and illegitimately ‘empowering’ citizens to shirk their responsibility with regards to payment of rates to the MMDAs.    

 

 

Studies conducted in various districts across the country at different periods reveal a general positive trend of citizens’ greater appreciation and awareness of their civic responsibility to fulfil tax obligations to respective MMDAs. In some districts, it has been reported that as high as 82 per cent of citizens demonstrate high level of awareness of their tax obligations to their districts. However, higher awareness of civic responsibility has not translated into higher level of compliance. About 50 percent of citizens are reporting payment of property rates but in most instances they have been prompted or “chased” by tax collectors. Payment of business fees and rates is just about 60 percent and often collection is characterised by strong antagonism between citizens and collectors. There is, thus, a higher sense of reluctance on the part of citizens to honour their tax obligations to their respective MMDAs in spite of greater awareness of their civic responsibility.  

  

The underlying factors leading to citizens’ non-compliance with their tax obligations include; poor service delivery by the MMDAs, higher taxes, unfair tax system and citizens perceived waste of tax revenue by the MMDAs. These reasons, upon examination, are rather symptomatic of the governance practices of the MMDAs which currently do not promote the recognition of the rights of citizens for their inclusivity into the governance and management of internally generated funds. 

 

Access to information on financial flows and expenditure are critical at local levels to inform local constituents and to encourage citizens’ participation in local governance. The essence is to promote demand-side transparent and accountable governance that ensures equity in resource utilisation at the district and community levels. Across the MMDAs, more than three-quarters (77.6%) of citizens do not have access to information on the revenue and expenditure. Although, almost all Assemblies display some information on revenue and expenditure on their notice boards located in the district capitals, accessing that information in one central location is very difficult.  Some citizens perceive that the notice boards at the Assemblies are for Assemblies’ internal use only. It is important that information on Assembly revenue and expenditure is disseminated further to the Area and Urban Councils to increase citizens’ access at minimal hindrances. 

 

To the extent that citizens contribute revenues or are expected to fulfil their tax obligations to the Assemblies, it becomes imperative to provide information that is handy, easily accessible and user-friendly to assist such persons to appreciate the financial inflows and outflows of the Assemblies, as well as how and why the resources are utilised. It is with the possession of the right information that puts citizens in an informed position to demand accountability from duty bearers at the district level and be ‘compelled’ conscientiously to pay their taxes to the MMDAs. After all, they will now know how the Assemblies are using their money and can ask critical questions bordering on the priorities of the Assemblies when the MMDAs become open about fiscal happenings. A practical way to operationalise this in the implementation of social contract which is dealt with in details under the section on recommendations. 

Transparency and Accountability in the use of IGF

 

District Assemblies need to demonstrate fiscal accountability and transparency in all revenue mobilization and expenditure decisions. Citizens should be able to hold District Assemblies to account for the services they provide. To do this, people need information about what decisions Assemblies are taking and how public money is being spent. Assembly Members as representatives of citizens are required by law to share information from the Assembly with their electorates. However, studies have shown that that the MMDAs do not disclose quarterly receipts even to the citizens’ representatives let alone to the citizens themselves. Without knowledge of IGF receipts, citizens are incapacitated in monitoring the utilisation Assemblies’ funds. One cardinal principle of transparency is that usable information should be made available in sufficient time to permit analysis, evaluation and engagement by relevant stakeholders.

 

Sharing information about revenue receipts can help manage expectations of citizens. The community members of Dalun in the Kumbungu District, for instance, are unwilling to pay rates to the District Assembly because, they believe that although the local authority generates significant percentage of its total revenue from sand winning in the community, the Assembly  does not account to them for revenue received.

Across MMDAs, sources of funding of physical infrastructure projects initiated by the Assemblies are not disclosed to community members by the Assembly Members responsible for those communities. Thus, citizens see themselves as not being direct beneficiaries from revenues they contribute to within their locality. Based on this assumption, the citizens believe that the projects are funded by revenue from the central government; and thus refuse to pay taxes to MMDAs.

Timely, reliable, clear and relevant public reporting on activities, financial management, operations and performance should be the standard of transparency and accountability in the management of IGF by MMDAs. Transparency and accountability enable citizens to have a say about issues that matter to them, influence decision-making and hold those making decisions to account. By fulfilling this responsibility the MMDAs makes it morally compelling for citizens to honour their tax obligations before and the law is used to enforce tax compliance. 

 

 

Citizens’ participation in budgetary allocation of IGF funds provides valuable inputs for improving the quality and sustainability of local policies and services. In order to foster trust, District Assemblies need to communicate to citizens in a transparent manner about past and future decisions and actions on internally generated funds. District Assemblies, however, should not only inform but also involve citizens including marginalised groups in the management of IGF. 

 

MMDAs have succeeded in involving citizens in the management of IGF only in instances of fee fixing; however, this involvement has only been limited to occupational bodies. Given the weak nature of the sub structures of the MMDAs, this may be enough. A practical way is to activate the development of community action plans and the subsequent uptake of these plans into annual budgets of the MMDAs. 

 

Currently, an average of 20 percent of citizens is aware of the preparation of the Medium Term Development Plan (MTDP), however, awareness does not guarantee participation. In such instances, the Development Plan of the Assembly may not adequately reflect developmental needs and aspirations of the citizens. Once citizens are convinced that their needs are not met, they will not fulfil their tax obligations. When citizens are not involved in development planning, implementation and management of IGF funded projects as their democratic right, it erodes the feeling of ownership, which undermines sustainability.

 

Many interventions on the management of IGF have been supply-driven, focusing on how Assemblies can increase their capacity to rake in more IGF with little considerations for citizens’ involvement in IGF governance. The preoccupation to increase IGF receipts without commensurate measures and directives on how the MMDAs can be more transparent and accountable to citizens does not represent any departure from the status quo. Critical consideration in the development of a framework for the management of IGF ought to be given to the refusal of citizens to pay tariffs set by MMDAs per fee fixing resolution. Other governance issues that require consideration include; low accountability on the part of Assemblies; poor relationship between revenue collectors and the tax payers; and unsatisfactory services by the Assemblies to the tax payers. In addition, evidence shows the almost entrenched disconnect between Ghanaians and their sense of responsibility to their respective MMDAs in terms of paying taxes and demanding accountability from officials for the judicious use of tax and non-tax revenues.  Generally, citizens do not have information and understanding of how IGF contributes to the good of society. Assemblies are not held accountable in their use of. Almost all MMDAs are using IGF on recurrent expenditure and this practice does not reveal immediately the benefits of IGF to citizens. 

 

There is minimum recognition on the part of the MMDAs, that by virtue of the fiscal policies they implement, they have an obligation  to fulfil the to fulfil citizens’ economic rights (the right to employment and food); social rights (the right to health, education); civil, political and cultural rights by ensuring efficient and effective use of resources.. Citizens have the right to know the amount of financial resources available to the MMDAs and how the resources are distributed.  MMDAs should be accountable for their efforts to generate and manage IGF equitably and in accordance with the fulfilment of human rights obligations.

 

There are best practices demonstrated by some MMDAs in the management IGFs. For instance, the Municipal Director of Finance of the Ho Municipality is on record to have pioneered an accountability forum through the use of local radio stations to account to citizens on how the Municipality is using IGF for service delivery. Through this initiative citizens are provided with timely and usable information that enable them to ask critical questions as how their monies are being utilised. Outside Ghana, there is a classic case of how the Lagos state in Nigeria has succeeded in quadrupling tax revenue without actual increase in rates of taxation. The state’s has developed and successfully implemented systems of pro-tax norms that demand responsibilities from both the state and citizens under agreed terms stipulated in a social contract. From just these two examples, mobilisation of rates can be anchored on pro-tax norms with the intention of fulfilling citizens’ rights to social and economic services.

 

Anchoring IGF management on the tenets of Social Contract: This is the belief that the MMDAs only exist to serve the will of the people. Reform or policy should consider the implementation of social contract between citizens and the MMDAs as the modus for exacting responsibilities from the two ‘entities’. Social contract should seek to introduce pro tax norms and that recognition should be extended to individual attitudes toward taxation. In a context where tax enforcement and social attitudes are still in early stages of development, the adoption of pro tax norms is important during the establishment of tax regimes because these norms boost compliance and can offset weak collection or enforcement capacity. Experience has shown that enforcement can be costly and does not often have strong and uniform effects on compliance. In the context of weak MMDAs penetration, the popular adoption of pro-compliance norms seems the most promising route to increase tax revenues (IGF) and the first moves towards social contracts.

 

The Strategic Framework must therefore adopt norms on social contract such that an agreement is reached between the MMDAs on hand and citizens on the other hand, regarding what and how IGF is used. The existence of norms that reflect a social contract between the MMDAs and society, trust in state institutions, and perceptions about the tax compliance of others is critical for MMDAs to increase revenue mobilisation. Conversely, the use of IGF in fulfilment of citizens’ rights and to the satisfaction about service delivery will further boost the revenue of the MMDAs as citizens will have no justification to withhold compliance.  Increased satisfaction with the manner in which the MMDAs have spent tax revenue raises the chances that individuals will express unconditioned support for tax payment. To operational the concept of social contract the following should be adhere to:

 

The Ministries of Finance, and Local Government and Rural development should develop social contract templates for MMDAs;

 

All MMDA should sign social contracts with social partners such as traditional authority, property owners, local branches of trade unions, occupational groups, artisans, the youth, women groups, persons with disability etc. The purpose of the social contract will be to reach the widest possible consensus on the goals of community development; the necessary steps existing for the rights of citizens to be recognised and given meaning to via the management of IGFs; and the fulfilment of tax obligations of citizens toward the MMDAs. 

 

The content of the social contract should be based on key decisions in the economic and social fields and the regulation of the relationship between MMDAs and citizens. The rights of citizens will be the subject of negotiations between the social partners and the MMDAs regarding the use of IGFs.

 

Public Service Charters: The operationalization of the social contract should then lead all MMDAs to develop public service charters. The service charter should define the values and principles that govern the conduct of public servants who are employed by the MMDAs or under the local government services. Also the charter should serve as a statement of commitment by public servants to uphold those values and principles stipulated in the social contract for the purpose of a two-phase accountability. The charter will outline the services offered by the MMDAs and the standards that underpin those services. 

 

Monitoring the implementation/adherence to the tenets of the social contract: CSOs including local NGOs and CBOs to monitoring MMDAs and citizens’ adherence to the tenets of the social contract.