Abstract
City corporations in Bangladesh
Key words: City
Corporation, Budget, Revenue, Tax,
Rates, Grants, Municipality, Finance, Administration.
1.1 Introduction
As
cities growth and decentralization becomes more common, local governments are
assuming greater responsibility for providing and financing effective public
services. In East Asia (excluding Japan Bangladesh Bangladesh
City Corporations are one of the tiers of urban local
government in Bangladesh
The City
Corporation of Bangladesh
1.2 Rationale of the study
The city corporations of Bangladesh Khulna Bangladesh
1.3 Scope and
limitation of the study
The present study mostly centered on the problems and
prospects of municipal income of Khulna City Corporation. More specifically the
study discusses about the revenue sources and administrative management of the city
corporation.
In the present study, the following are the limitations:
·
Detailed data are not
available in a systematic manner
·
Limited time
2 Municipal budgeting and financial
management
2.1 Introduction
Budgeting is a
key component of a decentralized system of sub national finances. Without
adequate budgetary autonomy and accountability, there is no real possibility of
attaining the efficiency gains associated with fiscal decentralization.
Budgetary autonomy means that sub national governments have discretion
regarding the level of services they deliver, their mix , as well as the
ability to decide how to produce public
services, in particular what inputs to hire and how much to pay for them.
Budget institutions and processes are important for decentralized system of
intergovernmental finances because they provide the mechanism to translate
taxpayer preferences into spending decisions and because they help maintain sub
national government officials accountability to tax payers.
2.2 Budget process and issues
In Bangladesh Bangladesh
2.3 Budget preparation
Budget
preparation typically takes anywhere between two to six weeks when
international practice shows that adequate budget preparation should take at
least several months. The budget proposal is formulated through the expenditure request of the
various budget units, following the budget calendar, which usually begins early
to mid-April and is concluded by late May. Absent from this process are the
budget preparation guidelines and understanding that accompany good budgeting
practices, policy service objectives, and accurate and achievable estimates of
revenues and expenditures. Thus the revenue and expenditure estimates are not
conducive to good budgeting practices and the budgeting process itself appears
to be merely an academic exercise. In fact budget preparation appears to
represent little more than an incremental adjustment to the previous year’s
budget in very general line-item descriptions and with disregard of the
deference between what has been budgeted and what has been executed. Unlike
modern budget practices, the proposed municipal budgets are not based on an
analysis of service level needs or planned policy objectives.
The scope of the
budget preparation process at the municipal level must be expanded to allow
greater technical and public comment on the content on the proposed expenditure
plans. The fact that the budget preparation process requires only 2-6 weeks
dooms the process to be little more than a perfunctory and essentially
meaningless effort. A structured and formal effort should begin immediately to
draft new budget forms which require more detailed information on the services,
activities, and projects for which expenditures are being recommended. To
prepare such budget forms in a manner that accurately reflect the proposed
expenditure plan, the municipal political and civic leaders must also embark on
the strategic planning activity that results in identifiable and measurable
objectives with specific target dates. The budget plans should be explained to
tax payers in open council meetings and publicized in the press.
2.4 Budget approval process
The budget
approval process starts with reviews and modifications of the draft budget by
the City Corporation authority to submission to LGD for more modifications and
adjustments in specific line items (if it appears that expenditure plans are
unrealistic relative to likely revenue receipts) prior to final approval. This
process of review at the Ministry level appears to be particularly meaningless,
since evidence year after year shows that expenditure and revenue projections
are grossly unrealistic, and GOB has not done anything to address this issue.
At this point in the budget process, LGD also indicates to the municipality the
amount of local government grants to be received and development projects to be
funded. Typically the approved budget is returned to the City Corporation by
mid-August even though the fiscal year begins July 1. An important issue is the
disjunction between the municipal budget approval process and the governments
own budgeting process. The fact that the municipal budgets are approved after
the government’s own budgeting process is completed, raises questions as to
whether municipal needs are considered as input into the grant resource
allocation by GOB.
The budgeting
and funding practices of the national government bear a substantial
responsibility for the generally substandard budgeting and fiscal management
policies and practices at the municipal level. To expect municipal officials to
prepare budgets without any prior indication of the level of block grant
funding from the GOB is irrational so long as the block grants remain such a
significant proportion of the City Corporation.
The timing of
the budgeting process therefore needs to be synchronized with the central
government budgeting process to allow need assessment, prioritization of
investments and enable final municipal proposed budgets to be used as input in
the central budget resource allocation exercise. The municipal budgeting
exercise should therefore start earlier. In addition, the fiscal timing of the
block grant process should be structured to provide fiscal incentives to
improve fiscal management at the municipal level. To achieve reform objectives,
the GOB should establish budget targets for the block grant category and
provide appropriate fiscal guidelines to the City Corporation by April 1 each
year for the succeeding fiscal year. Simultaneously, the criteria to be used in
the allocation of these funds should be published and implemented as announced.
2.5 Budget execution and management
The successful
execution and management of the budget requires the establishment of policies,
procedures, and efforts to assure the prompt and timely collection of revenues
and for each management purposes, the expeditious investment of those revenues.
Similarly the rate expenditures should not only be monitored in terms of actual
levels, but should be evaluated relative to previously approved and a need upon
budget expenditure plan. In this phase of the budgeting process the policies
and practice of Bangladesh
Under normal
circumstances, the third quarter budget review could provide an excellent basis
for developing a more continuous and meaningful expenditure management process.
A quarterly formal review of revenue receipts and expenditures could provide
the transition to the adoption of monthly monitoring of expenditures and
revenues and a more effective budget execution process. Another important issue
in budget execution is the lack of decision powers of officials in charge of implementing
municipal functions. Officials in charge of different spending units should be
granted flexibility on management decisions within their assigned budgets. To
guarantee compliance with the budget mandates, spending units should be
required to seek permission from the chief executive officer before funds are
re-allocated across budget categories.
2.6 Strengthening municipal financial management
The budget and
financial management process should seek to achieve two principal public policy
goals.
(a)
Reflect in discrete and observable ways the purposes
for which public sources will expended, by being more open(and more responsive
to its citizens), and more descriptive of the services to be offered, by whom
they will be provided, and to whom they will be provided.
(b)
Provide a means of measuring both political and fiscal
administrative accountability. The most important role of sub-national
governments is to decide what expenditures best satisfy the needs and service
requirements of its citizens. The successful achievement of this roll is both
politically desirable and economically efficient as well.
3 Municipal incomes
3.1 Introduction
Municipal income
is very much depending upon local tax and central Government allocation in Bangladesh
3.2 Municipal income
The main revenue
source of City Corporation is holding tax (land, conservancy, lighting, and
water supply). Now tax revenue, Government grants etc. The main source of City
Corporation revenue can be divided into three groups:
Internally raised revenue
The Government grants and
Loans and Advances
The Third source
is very low is proportion to the total revenue of the City Corporation. Government
grant includes all types of supportive assistant from the own source revenue
includes taxes, rates, fines, tolls and profits from own property. Own revenue
has always constituted the major portion of income in the City Corporation.
3.2.1
Internally
raised revenue
Internal revenue
can be broadly classified in three categories. They are:
- Land or Property Based Revenue
- Activity based or Benefit Based Revenue
- Income from City Corporation own property
This includes
tax on house, rates of electricity, water and conservancy and urban immovable
property transfer tax. While the first three are purely local lives, the fourth
one is a tax shard with the government.
3.2.1.2 Activity based or benefit based revenue
These include taxes
on profession, trades and callings tax on application of erection and re-erection
of buildings, taxes on advertisement, amusement vehicles fees for markets and
licenses and tolls on ferries, bus stand and sand deposits.
3.2.1.3 Income from City Corporation own
property
This includes
Paurashava own property income for shops, land, building, markets, auditorium,
community centre, ponds and boarding houses.
3.2.2
Government Grant
Government
grants are all types of supportive assistance from the center. The grants are
wanted mainly for paying a portion of the salaries and compensations of local
employees, honorarium of elected representatives’, maintenance of
infrastructures and development of roads, culverts, drains and canals. The
Government grants are of the following:
- Urban normal grant
- Octroi compensation grant
- Urban works program grant
- Special development grant
3.2.2.1 Urban normal grant
These include
special salary grants compensatory grants for special purposes like mosquito
eradication, education programs, medicine and injections. The basis for normal
or recurrent grant is the need for additional resources for salaries of staff
in the City Corporation and the traditional quantum of aid that had been
following.
3.2.2.2 Octroi compensation grant
Octroi
compensation grant was started from the fiscal year 1981-1982 as a replacement
to the City Corporation lost income from octroi tax, which was suspended by a
central decision at the recommendation of the taxation inquiry commission.
3.2.2.3 Urban works program grant
Urban works
program (UWP) grants have been the primary development grant for the urban
local bodies in Bangladesh
3.2.2.4 Special development grant
In Bangladesh
3.2.3 Loans and advances
Loans and
advances is the third source which is very small in proportion in context of
total revenue of the City Corporations in Bangladesh
Revenue from
different sources of City Corporation is followings:
Table01: Revenue
from different sources in City Corporation
|
Internal sources
|
Government grants
|
Loans and advances
|
|
Holding tax,
property tax,
tax on erection of buildings,
profession tax,
tax on establishment,
tax on vehicles,
fees for markets,
other taxes and tolls,
own property income,
other income
|
Normal grant,
Octroi compensation,
Works program,
Development assistance
|
Government loan,
Foreign loan
|
Source: Municipal
finance in Bangladesh
Revenue collection process
diagram of KCC is shown in the next page in figure no. 01.
4.0 Revenue Collection Process
Figure01: Revenue
Collection Process diagram of KCC.
5.0 General Information about KCC
Table02: General information about KCC
|
Worker
|
1287
|
|
Ward
|
31
|
|
Population
|
15,000,00
|
|
Area
|
45.65 sqkm
|
|
Holding number
|
40640
|
|
Property
|
163.94 acre
|
|
Slam
|
55
|
|
Super market
|
16
|
|
Community centre
|
26
|
|
Cemetery
|
7
|
|
Park
|
9
|
|
Child park
|
2
|
|
Bazar
|
26
|
|
Public toilet
|
10
|
|
Shasan
|
4
|
|
Slaughters house
|
3
|
|
Health centre
|
3
|
|
Urban primary health care centre
|
27
|
|
Maternity centre
|
2
|
Source: KCC, 2003.
6.0 Municipal income
of Khulna City Corporation
The income of KCC
is basically two types as well as other city corporations. The contribution in
yearly expenditure the income from external sources is several times higher
than income from internal sources. The contribution of internal and external
sources of income of KCC is shown in the table below.
Table03: Revenue
from different sources in KCC.
|
Year
|
Internal source
|
Percent
|
External source(Govt.)
|
Percent
|
|
2000-01
|
32,10,74,829.00
|
12.38
|
227,71,33,892.00
|
87.62
|
|
2001-02
|
35,11,42,128.00
|
13.01
|
234,72,39,000.00
|
86.99
|
|
2002-03
|
42,97,35,805.00
|
15.02
|
243,10,54,000.00
|
84.98
|
|
2003-04
|
36,17,17,325.00
|
13.61
|
229,51,20,000.00
|
86.39
|
|
2004-05
|
39,19,90,000.00
|
13.80
|
245,17,00,000.00
|
86.20
|
Source:
Annual Budget, KCC.
From the above
table we can find that in total income of KCC in year 2000-2001 the
contribution of internal source is 12.38% where contribution of external source
is 87.62%. In year 2001-2002 the income from internal source is 13.01% and income
from external source is 86.99%. Income from internal and external source is
15.02% and 84.98% in year 2002-2003. Contribution to total income from internal
and external source is 13.61% and 86.39% in fiscal year 2003-2004 and
contribution of internal and external source is 13.80% and 86.20% in year
2004-2005.
Table04: Total
income and expenditure of KCC.
|
Year
|
Total income (tk)
|
Total Expenditure(tk)
|
|
2000-01
|
259,82,08,721.00
|
257,98,06,743.00
|
|
2001-02
|
269,83,81,128.00
|
269,83,81,128.00
|
|
2002-03
|
286,07,89,805.00
|
281,08,76,450.00
|
|
2003-04
|
265,68,37,325.00
|
255,68,37,289.00
|
|
2004-05
|
284,36,90,000.00
|
284,55,16,200.00
|
Source: Annual Budget,
KCC.
The table above
shows the total income and expenditure of five years of KCC. More or less the income and expenditure of
every year is near to same. The total income of fiscal year 2002-2003 is 286,
0789,805.00 which is the highest income within five years and total expenditure
of year 2004-2005 is 284,55,16,200.00 which is the highest expenditure within
five years.
6.1 Organogram of
revenue collection system of KCC
Figure02: Organogram of revenue collection
system of KCC
Working process
diagram of Tax assessment of KCC is shown on next page in figure no.03.
6.2 Working process diagram of Tax assessment of KCC
Table05: Revenue from internal sources of Khulna City
Corporation.
|
Internal Sources
|
Amount of income (in tk)
|
|
Tax
|
10,73,45,000.00
|
|
Rates
|
10,80,00,000.00
|
|
Fees
|
2,79,70,000.00
|
|
Penalty fee
|
1,65,000.00
|
|
Others
|
72,10,000.00
|
|
Govt grant
|
70,00,000.00
|
|
Profit from bank
|
60,00,000.00
|
|
Tender form
|
2,00,00,000.00
|
|
Asphalt plant
|
1,25,00,000.00
|
|
Roller fare
|
20,00,000.00
|
|
Bus/truck terminal
|
10,00,000.00
|
|
Miscellaneous
|
20,00,000.00
|
|
Salary &
advance back
|
15,00000.00
|
|
Water supply
|
8,93,00,000.00
|
|
Total
|
39,19,90,000.00
|
Source: Annual Budget
2004-2005, KCC.
The above table
shows that total income from internal source is 39, 19, 90,000 in fiscal year
2004-2005. the highest income is gain from rates sector which is 10,80,00,000,
next greater income is generated from tax sector which is 10,73,45,000 and next
from water supply and the amount is 8,93,00,000. The lowest income is generated
from penalty charge and the amount is 1, 65,000.
Table06: income from external
sources of Khulna City Corporation.
|
Sources
|
Amount of income (in tk)
|
|
Govt. special grant
|
10,00,00,000.00
|
|
Govt. grant in ADP
|
104,37,00,000.00
|
|
Govt. grant in projects
|
109,20,00,000.00
|
|
Total
|
223,57,00,000.00
|
Source: Annual Budget
2004-2005, KCC.
From the above
table we find that total income from external source in fiscal year 2004-2005
is 223,57,00,000 in which the largest contribution is from govt. grant in
projects and the amount is 109,20,00,000 next contribution from govt. grant in
ADP and the amount is 104,37,00,000 and next contribution is 10,00,00,000 which
is contributed from govt. special grant.
Table07: Revenue
from tax sector of KCC.
|
sources
|
Amount of income (in tk)
|
|
Holding tax
|
8,40,00,000.00
|
|
property transfer tax
|
80,00,000.00
|
|
Registration of premises tax
|
2,00,000.00
|
|
Profession tax
|
97,30,000.00
|
|
Advertisement tax
|
6,50,000.00
|
|
Cinema tax
|
17,50,000.00
|
|
Transport tax
|
2,00,000.00
|
|
Rickshaw, van tax
|
28,00,000.00
|
|
Animal tax
|
15,000.00
|
|
Total
|
10,73,45,000.00
|
Source: Annual Budget
2004-2005, KCC.
The table above
shows that total revenue earned from tax sector in fiscal year 2004-2005
is 10, 73, 45,
000. The maximum contribution is earned
from holding tax and the amount
is 8, 40, 00,
000 and the lowest income is generated from animal tax which is 10,73,45,000.
Table08: Revenue from
fees sector of KCC.
|
Sources
|
Amount of income (in tk)
|
|
Toll from Bazar
|
50,00,000.00
|
|
Super market fare
|
1,10,00,000.00
|
|
slaughters
|
7,00,000.00
|
|
Warrant fees
|
20,000.00
|
|
A.R.V sell
|
50,000.00
|
|
License for rickshaw
|
2,00,000.00
|
|
Fare from Hall and park
|
1,00,000.00
|
|
Road cut & Damerage
|
50,00,000.00
|
|
Fare from zia hall
|
7,00,000.00
|
|
License fees from
contractor
|
27,00,000.00
|
|
Surcharge
|
25,00,000.00
|
|
Total
|
2,79,70,000.00
|
Source: Annual budget
2004-2005, KCC.
From the above
table we can see that total income of fees sector in fiscal year 2004-2005 is
2, 79, 70, 000.
The income generated from market fare is 1, 10, 00, 000 and others contribution
from various sources of fees. The lowest amount of income is only 20,000 which
are generated from warrant fees.
Table09: Revenue from water Department of KCC.
|
Sources
|
Amount of income (in tk)
|
|
Water tax
|
|
|
previous
|
2,88,00,000.00
|
|
current
|
2,92,00,000.00
|
|
Pipe line connection
|
5,00,000.00
|
|
Monthly charge
|
|
|
previous
|
2,00,00,000.00
|
|
current
|
1,00,00,000.00
|
|
Special water supply
|
8,00,000.00
|
|
Total
|
8,93,00,000.00
|
Source: Annual budget
2004-2005, KCC.
The above table
shows that total income from water department as tax from water supply is 8,
93, 00, 000 in fiscal year 2004-2005.
Table10: Tax collection performance of KCC.
|
Year
|
Types
|
Amounts (in tk)
|
Percentage
|
|
2000-2001
|
Collected
|
8,11,24,283.00
|
25.27
|
|
|
Not collected
|
23,99,50,546.00
|
74.73
|
|
2001-2002
|
Collected
|
12,38,04,521.00
|
35.26
|
|
|
Not collected
|
22,73,37,607.00
|
64.74
|
|
2002-2003
|
Collected
|
12,24,80,982.00
|
28.50
|
|
|
Not collected
|
30,72,54,823.00
|
71.50
|
|
2003-2004
|
Collected
|
13,31,76,530.00
|
36.82
|
|
|
Not collected
|
22,85,40,795.00
|
63.18
|
|
2004-2005
|
Collected
|
18,29,90,014.00
|
46.68
|
|
|
Not collected
|
20,89,99,986.00
|
53.32
|
Source: KCC record,
2005.
Thus we can
realize the tax collection performance of KCC is in bad condition. Every year
very few percent of revenue can be collected. Within five years highest revenue
is collected in fiscal year 2004-05 which is 46.68%. In fiscal year 2000-2001,
2001-2002, 2002-2003 and 2003-2004 the revenue collection is 25.27%, 35.26%,
28.50% and 36.82% respectively. The main defaulters of tax payment are
politicians and government itself.
7.0 Problems of
revenue earning process
The paurashava
ordinance states that “City Corporation may with the previous sanction of the
government levy is the prescribed manner, all or any of the taxes, rates, tolls
and fees mentioned in the first schedule.” So by legislation the City
Corporation authority is liable to fix up tax and collect them. Tax collection
depends on the execution of this rule properly. The main problems of tax
collection in Khulna
City
¨
Tax assessment and collection procedure is
backdated and corrupted.
¨
Lack of consciousness of the people
¨
Administrative problems
¨
Influence of local politicians and pressure
groups
¨
Lack of strong database
¨
Lack of personnel
¨
Corruption and irregularities
¨
Other problems
8.1 Conclusion
Municipal
finance is very much important. In context of Khulna City Corporation the
municipality is very much dependent on central government allocation. For self
sufficiency of municipality the reformation of municipality is very much needed.
The expert manpower should be employed in City Corporation. In Division level
there are other government agencies those are responsible for some activities.
There exists parallelism of activities and lack of coordination among them. As
a result municipality can not play the desired role in urban management. So an
intergovernmental coordination is very necessary.
The legal
framework of municipalities should therefore be reviewed right away with the
objectives of consolidating and simplifying the numerous legal provisions
affecting City Corporation. The best strategy for reform is to update and
expand the paurashava ordinance, municipal law, consolidate all the different
legal provisions in regulations and standing orders and apply equally for
paurashava and city corporations with specialized provision where necessary.
The objectives of this law would be to provide a legal framework for
municipalities more self government and operational independence and imposes
more accountability in their performance, including flexibility in alternative
ways to provide municipal services.
8.2 Recommendations
Initiate legal/ policy steps to prevent/
discourage the inclusion of are as a source of revenue initiate fiscal incentives
or sanctions for failure to pay taxes.
It is necessary to modernize accounting system:
introduce double entry cash accounting system, computerizing budgeting,
financial management and auditing.
It should find out the alternative sources of
income and develop capital improvement plans.
Increase revenues from holding taxes by
increasing the tax base immediately and adjust for inflation, and increase
penalties for delinquency.
Increase revenue from other taxes by adjusting
the tax rates in the model tax schedules immediately: provide incentives to tax
personnel to improve tax efforts.
Develop Taxation Mapping and strong Database
system.
References
Khulna City
Corporation (KCC), Annual Budget
2000-2005, Khulna , Bangladesh
Hossain, M., 1989, Municipal finance in Bangladesh Dhaka .
Hasan, k.,
1997, Bangladesh Dhaka .
Ferdous, S., (1999), Expenditure pattern
of a paurashava: a case study on Kushtia paurashava, BURP thesis, Urban and
rural planning Diacipline, Khulna
University Khulna , Bangladesh
Roy, K.T., (1998), Utilization
of municipal immovable properties: A Study on Bagerhat Paurashava Khulna University Khulna , Bangladesh
World Bank, (1997), Bangladesh Bangladesh Dhaka , Bangladesh
Ahmed, N., (1992), Barisal Paurashava finance, A journal of local Government, Vol.21, No.2, National Institute of Local Government
publication, Dhaka, Bangladesh.
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