Ghana Needs Local Tax Revenues to Finance Sustainable City Services

By Peter Jongkind

Peter Jongkind is VNG International's Program Director of the Tax Revenue for Economic Enhancement Program in Ghana.

Mar 7, 2018 | Governance, Society | 1 comment

Urbanisation is an undeniable global trend. By 2030, urban areas are projected to house 60 percent of the world’s population. Of these urban inhabitants, 828 million people will live in slums, and the numbers are projected to keep rising. Cities are facing enormous urban challenges including tackling the impact of climate change, insufficient funds to provide basic services, the provisioning of healthcare and education, and declining Infrastructure – all of which disproportionately affect the urban poor.

Given this context, it’s not difficult to imagine that many people across the globe have no access to clean drinking water, their homes are left dark without electricity, and roads remain unpaved. Everybody knows, whether you like to pay them or not, that (local) tax revenues fund these basic public services. However, in many countries local governments fail to receive a whopping 80 to 90 percent of the revenues that could have been collected.

The result is that these localities fall short of the funds needed to adequately and reliably deliver services to their citizens. As highlighted by Sustainable Development Goals 17 enhancing domestic resource mobilisation, strengthening the ability of cities to collect revenues is an important way to solve this issue. For these reasons, VNG International has developed a methodology to support cities in better mobilising their own resources, to empower them to bridge the tax gap, and to drive their own development.

 

What is Needed

Bridging the tax gap and increasing efficiency in service delivery is only possible when two preconditions are met:

  1. First and foremost, a reliable and accountable local government must be in place. To increase revenue collection and improve service delivery, accountable local governments – ones that understand their main task as delivering good services in a customer-oriented manner to their citizenry – need to be in place.
  2. The second and equally important component is the citizens. It is crucial that they understand the importance of a constructive dialogue with their local government and are stimulated to participate and contribute to their city’s planning and prioritisation processes. According to the World Bank, realising these preconditions will lead to more effective revenue collection that will, in turn, strengthen the social contract between citizens, businesses, and government.

 

Performance Challenges

In order to obtain a better understanding of precisely which performance challenges certain cities face, we provide several examples from the Ghanaian context:

  • Most cities in Ghana are unable to access information about property valuations due to the high cost of these services.
  • There are no reliable databases (e.g., street names or property addresses) to make billing and collection efficient.
  • Most cities handwrite bills, which is time consuming and can result in revenue leakages.
  • Many tax collectors are nearing the end of their careers as civil servants and are less educated. This renders them less efficient.
  • Uneven leadership commitment and political interference hinders revenue mobilisation and collection.
  • In most cases, local government employees receive no training programmes pertaining to communications and social skills.

Although these observations come from our research into Ghana, cities the world over a face the same kind of issues.

 

VNG Methodology

When we began our work in 2014, we were acutely aware that we should address the two preconditions mentioned above. The change approach should also be relatively easy to implement, scalable, flexible, sustainable, and affordable. In other words, our challenge was to create a methodology that was as simple as possible for addressing complex issues in manner that was easy to implement at a relatively low cost.

The result is a methodology in which we first focus on the local tax administration by improving capacity of staff, procedures and IT support. Experience shows that this is the main constraint on revenue mobilization in local governments of developing countries. Secondly, we pay attention to political awareness, and measures that encourage constructive engagement between local governments and citizens over tax issues and taxpayer education.

 

Results and Next Steps

Different components of the methodology have been piloted and tested in several projects in Ghana. As a result of these pilots, in Kadjebi, revenues doubled in just one year, and in Elmina, the tax collection base has been increased by a factor of 20 thanks to the implementation of billing and collection software and capacity building. Kumasi has significantly increased market revenues (by 48 percent in one month) by signing a social contract with a group of women locally known as ‘market queens’. In exchange for better sanitation facilities and street lighting, which ensures an overall safer environment in which to conduct their business, these women help with the revenue collection of market fees. The large harbor city of Tema was helped to develop plans for a phased transition from outsourcing their tax collection (at a cost of 30 percent of total tax revenues) to one that is handled internally. In Sekondi Takoradi we assisted in developing a mass communication campaign to make citizens aware of the relation between paying taxes and improved basic services.

Based on the success of our pilot work, the Embassy of the Netherlands in Ghana has agreed to finance a four year follow-up programme across 32 municipalities in Ghana. In these municipalities the full methodology will be implemented in close co-operation with the local and national authorities. The official kick-off of the project will be done by the Ministers of Local Governance and Rural Development and Finance in Cape Coast on March 14th this year.

Discussion

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1 Comment

  1. Excellent initiative and well needed across not only the “developing world”, but also to reinforce community spirit and unity in “developed” countries.

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