Framework for a Strategy of UP Revenue/Resource Mobilisation ...

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I. Introduction and Background to the Assignment Bangladesh has a long history of local government and the post–independence 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) by 2015, 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 Governance Development Fund Project (SLGDFP) was designed by UNDP and UNCDF and implemented by the Local Government Division (LGD) of the Ministry of Local Government, Rural Development and Cooperatives (MLGRDC) during the period of 2001-2007. This project has demonstrated the positive impact of developed block grant funding on infrastructure and service delivery at the local level, as well as performance improvement of Union Parishads (UP) in areas such as planning, finance, resource mobilization and management. This project has significant impact in involving community in UP affairs, as well. After successful completion of SLGDFP, the government has started Local Governance Support Project (LGSP) in 2006 with financial support from UNDP, UNCDF, World Bank, EC and DANIDA. UNDP and UNCDF are supporting one components of LGSP, which is Learning and Innovation Component (LIC). This LIC of the LGSP aims to promote poverty reduction and Millennium Development Goals (MDG) achievement through building the basic service delivery capacities of Union Parishads. LGSP-LIC will field test in more realistic conditions the successful innovations already pioneered in the Sirajganj project and 1
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 opportunity to 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 The Government’s commitment to improving local UP revenue is set forth in the National Strategy for Accelerated Poverty Reduction (NSAPR, Bangladesh’s PRSP). Indeed, the NSAPR identifies local UP revenue as one of eight priorities in the medium term strategic agenda for Bangladesh. It recognizes the need for simultaneously pursuing the agendas of political and functional decentralization, putting the emphasis on partnership between local government bodies and other local actors, and, projecting the importance of newer agendas of decentralized service-delivery and promotion of local economies. The focus is not only on local governments as project implementing bodies but on local UP revenue as a political and institutional process which can contribute to the required scaling up of the rate of poverty reduction through more effective resource mobilization and enhanced development choices available at local level and better inclusion of all social groups in these choices. The NSAPR also recognizes the importance of linking union parishads to critical 1 See Nick Devas (July 2007): Local Revenue Sources for Union Parishads: Report of a Study; and Nick Devas (September 2008): Enhancing Revenue Sources for Union Parishads 2
Page 1 and 2: Local Governance Support Project- L
Page 3: ABBREVIATIONS AND ACRONYMS ADP Annu
Page 7 and 8: III. Legal Status of UPs Revenue Mo
Page 9 and 10: � Regular transfers from central
Page 11 and 12: official formula. 6 However, in man
Page 13 and 14: at the ceiling rate of Taka 500, in
Page 15 and 16: Table 1: Holding Tax Assessment Pil
Page 17 and 18: It should be pointed out that there
Page 19 and 20: probably be paid more than the 15%
Page 21 and 22: � increasing UPs’ share of the
Page 23 and 24: e. Fifth UP will be selected where
Page 25 and 26: about the level of business taxes,
Page 27 and 28: � Policy Advocacy a. Policy advoc
Page 29 and 30: Ups’ self sufficiency and better
Page 31 and 32: Tax Schedule, 2003 to at least refl
Page 33 and 34: 5. Motivation and Incentive system
Page 36 and 37: Annex- 2 : Holding Tax Assessment R

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