Fiscal decentralisation generally refers to the devolution of revenue collection and spending powers from the control of central government authorities to government authorities at sub-national levels.
Government adopted the Decentralisation Policy in 1998. The subsequent enactment of the Local Government Act, 1998 provided a legal framework for operationalisation of the policy.
Devolved functions, responsibilities
The first fundamental step in the design of a system of intergovernmental fiscal relations is the assignment of functional responsibilities among different levels of government.
The policy identifies several broad functions and services that have to be assigned to the Local Authorities (LAs).
These include education services, medical and health services, environmental services, roads and street services, public amenities, land resource utilisation, natural resource management, fisheries, forestry, agriculture and Irrigation, water, community development and community policing, among others.
While the policy outlines these broad functions and services, devolving central government line ministries prepare sector devolution plans that provide specific details of the functions being devolved to LAs.
While LAs are assigned specific functional responsibilities to implement, line ministries retain responsibility over policy formulation, establishment of standards, inspectorate and enforcement of the set policies and standards.
Having determined the functional responsibilities that must be devolved, it becomes inevitable that LAs must be assigned corresponding fiscal resources for them to effectively and efficiently implement the devolved functions.
The policy and the Local Government Act, 1998 identify revenue sources for LAs as comprising locally generated revenue, central government transfers and ceded revenue.
Locally generated revenue sources for LAs include property rates, ground rent, fees and licences, commercial undertakings and service charges.
Central government transfers comprise unconditional and conditional fiscal transfers. Ceded revenue includes non tax revenue that is collected by central government and latter ceded or redistributed to LAs.
The allocation of central government transfers to respective LAs is done using an intergovernmental fiscal transfer formula. This will be elaborated further in our subsequent editions.