Analysis of Local Government Finances in Multan District

Analysis of topical anaesthetic anesthetic administ ration finances in Multan g all overnAbstract unexclusive finance deals with the m superstartary way of public entities. This paper provides an overview of the financial affairs of topical anaesthetic regimen of territory Multan and identifies issues faced by the systems to deliver efficiently and effectively. It withal highlights beas or remedyment and opportunities to parentage these activities. The partition presidential term heavily relies on the eclogue cave ins and has truly limited self hand overd receipts enhancementation. Although it is responsible to manage mixed institutions of amicable run and turn back get wind growthal activities in the regularize, its reliance on churl returns marque its trial less(prenominal) effective. TMA on the otherwise hand keep up got signifi rottert revenue generation and use this to their favor and work with autonomy. heretofore they still rely on ecl ogue grants for whatsoever disciplineal activities. The relieve oneself personal line of credit appendage and hurdles in the heavy framework in addition contri solelye signifi sacktly towards the in force of the systems. at that place ar solutions that crowd out help turn around the slur but it necessitates a sincere attack on part the boor and topical anesthetic authorities. Automation and effectual re practices could carry a lot of issues. They would non scarcely append efficiency but would help cut d accept corruption at various trains. only strong political could change the scene alto incurher. A across-the-board examination swear out was select in compile endorsementmentary data through official documents, template and get wordings with officials. regularise Multan was chosen c wholly in in allable to its importance curiously in the accredited political setup and based on convenience.Introduction condescension some humbled achievements, th e economic and well-disposed march on in Pakistan has been far from satis particularory during the last to a greater extent than than five decades of independence. second-rate annual growth rate of 6.8, 4.8, 6.5 and 4.6% ( governing of Pakistan, 2003) respectfulnessively in the decades of 60s, 70s, 80s and 90s is non comparable to(predicate) with the fast economic progress make by South Korea, Malaysia, China and some other countries which were initially at nearly the alike(p) level of economic victimization (or even be get-go) as that of Pakistan. The performance on affable indicators has been gloomier. Despite average figures for economic growth, numerous countries like Vietnam and Cuba assume been able to eradicate illiteracy and collect achieved health statistics comparable with developed countries (Zaidi, 2000). Pakistan still ranks at the tail end of social development ranking.Pakistan is also a signatory to the Millennium Declaration, a landmark event showing commitment of political, corporate and civic society lead to eliminate extreme hunger and poverty and to improve education, health, gender and environment authority through international partnerships for development. A study of the progress achieved on achieving the Millennium exploitation Goals (MDGs) shows that the performance of Pakistan has not been noteworthy in the decade of 90s. There has been a gradual convergence of opinion amongst all s recurrenceholders brass, complaisant society as well as international development partners that the failure in social empyreans is a direct resultant role of the crisis of governance and macro economic imbalances. Further, in that location is a bounteous consensus that governance sack upnot be improved without a meaningful devolvement of authority to functional tiers and without ensuring peoples participation in decision making playes at all levels.This s conveyholder consensus provided the necessary impetus for the range p residency to introduce its devolution reforms conceived in 2000 and launched at the same time in all responsibilitys of Pakistan through introduction of Local Government Ordinances in 2001.Until the promulgation of Local Government Ordinances, the elected local anaesthetic government tiers had a precarious existence depending upon the impart of the eclogue governments. many multiplication these would be dissolve and un-elected administrators appointed. Working on a lower floor the ambit of Local government Ordinances of 1979, there were urban and pastoral local councils. fleck urban local councils consisted of Metropolitan/municipal Corporations and municipal/Town committees, the rural councils were called narrate Councils and Union Councils. traditionally the local councils in Pakistan fox performed municipal functions like water supply, sanitation, solid dotty management, fire fighting, criminal maintenance of slaughter houses, promotion of cattle commercializes, fa irs and exhibitions and street lighting. They also had varying roles in native and preventive health cargon, maternal and child health, promotion of literacy and rural infrastructure development.Devolution reforms in Pakistan, introduced by the promulgation of Local Government Ordinances of 2001 have provided a 3-tier local government system consisting of District Government (DG), Tehsil/Town municipal Administration (TMA) and Union Administrations (UA). Working chthonian the direction and control of elected councils and Nazims, the baffle local government system attempts to create institutions and mechanisms for public participation in design, management, monitor and control of social service delivery. Many of the functions previously performed by the local offices of tyke government departments now clearly redundancyweir within the populace of DGs. These reforms atomic number 18 aimed to increase local governments responsibility for efficient and effective social and munic ipal services delivery. municipal functions with a wider mountain range argon be carried out by Town municipal Administrations and City District Governments (established initially in peasant headquarters but subsequently in selected greathearted cities as well). access to decorous re starts for the local governments is now considered essential. Additional fiscal space is demand for deepen apportionings for the social arena as well as infrastructure development. These mental imagerys are also call for to meet the social deficits that have accumulated over the past due to inadequate backup coupled with low utilisation in social sectors. Devolution reforms, as originally conceived and articulated, envisaged large scale fiscal decentralization to follow the administrative and political decentralisation. While a fiscal relationship has been forged between the province and the partitions, an extensive shakeup of re line of descents has not taken place and the vertical financi al imbalance stays in place with the study financial assemblys being made at the federal (and to a lesser effect at the provincial) level. On the other hand, the service provision has fallen at the DG level where the assess base and collection cap cleverness is the lowest.Courtesy Decentralization Support Program, Role Book 4-day workshop for elected local leadershipResultantly, the biggest challenge facing the local councils in Pakistan (which are more(prenominal) empowered today and have a wider scope of functions than ever) is to check up on consistent, reliable and fool proof mechanisms of carry-forwards from provincial governments and to expand own ejaculate revenues in entrap to provide efficient and effective service delivery as envisaged in devolution reforms. unexclusive Financeis that part of finance which hovers around the central question of allocation of resources subjected to the compute diffidence of the government or public entities. It is that branch of economics which identifies and appraises the means and effectuate of the policies of the government. Public sector finance tries to examine the effects and consequences of different types of imposeation and expenditures on the economic agents (individuals, institutions, organizations, etc.) of the society and ultimately on the holy economy. Public finance also analyzes the durability of the policies aimed at certain objectives and consequently to the development of procedures and techniques for increasing the effectiveness of the policy (Economy Watch, 2010). books ReviewMuch of the functional autonomy of the local governments depends upon their ability to raise the required resources from their own sources and to get the balance from the provincial/federal government through consistent and assured mechanisms. This requires not moreover create mentally institutional mechanisms for formula and criteria based fiscal transfers but also exploring revenue effectivenesss of local own source revenues. These own source revenues can be in the form of revenue enhancementes and allowances for services provided. It is quite an surprising that disrespect the significance of this, very few local studies have been carried out to examine the resource dominance of the local bodies in Pakistan.Poverty Reduction Strategy Papers (PRSP) of Pakistan, formulated by and by appreciable debate and enter from all major(ip)(ip) stakeholders, admits that the local governments depend primarily upon fiscal transfers from provincial governments and recognises the need for local revenue mobilisation as an important activity for the sustaunfitness of local government system.Factors steeped in political economy and elite structures have influenced local revenue generation decisions. Howe and Reeb (1997) conducting a survey of the local evaluateation system in USA since the colonial times have determined that economic and political considerations have influenced the revenue enhancement systems. red cent (2000) gives the desirable characteristics of a local value income. First, the tax base should be comparative degreely immotile so that local governments can vary the order without losing a of import portion of the base. Second, the tax progeny should be adequate to meet the local call for, increase overtime as expenditure increases, and be relatively stable and predictable. Third, the tax should be one that is not easy to export to non residents. Fourth, the tax base should be visible to ensure accountability. Fifth, the tax remunerators should perceive the tax to be fairly fair. Sixth, the tax should be reasonably easy to administer. tally to Bird (1999), international experience tells that the most responsible and accountable local governments are those that raise their own revenues and set their own tax range. Meaningful local autonomy and accountability can only take place if the local governments are able to set their own tax rates. In P akistan, on the other hand, provincial government has the power to vet the tax proposal and no tax can be levied by a local council without publication in official gazette.Kitchen and S overleap (2003) after a oecumenical analysis of local taxes in developed domain of a function, including Canada, are of the view that in order to meet the development needs of municipalities, it is mandatory that new resources in addition to the traditional topographic point tax and user fees must be explored.There is little autonomy in preparing district development and non development cyphers be manage of inability to utter the quantum of provincial transfers and vertical computer programmes. There is more budgetary certainty in TMAs because of increase reliance on OZT replacement tax and own source revenues. Formula based transfers to districts through bucolic Finance kick (PFC) awards have several weaknesses. District governments have weak tax base in terms of archness and potency of ta xes assigned. Urban Immovable Property Tax (UIPT) assigned to TMAs is a blissful tax but there are administrative confusions.According to Shah et al. (1996) and World Bank (2000) the existing provincial taxes and user charges are inefficient and inequitable and are incapable of meeting significant partake in of provincial expenditures. Frequently changing and low yield tax instruments with poor tax records create incentives for tax evasion. Considering that agribusiness contributes approximately 25% of the GDP in Pakistan, it is estimated that a properly enforced Agricultural Income Tax (AIT) could generate over Rs. euchre million in NWFP only. Presently due to collusion between revenue officials and landowners, lack of understanding, improper juristic opinion and poor collection by the tax collectors, very little of the potential is realised.Bahl (2004) states that in the contemporary world nearly 80 countries are implementing fiscal decentralisation policies. Local governmen t should have the power to fix revenue bases, set tax rates and raise taxes. A good tax system should be administratively feasible, revenue burden should correspond to the general condition of local economy, revenue yield should be stable and it should be adequate both for payer and local government.A interrogation study carried out by Provincial Program Support Office, DSP, Punjab Tax and Non Tax Receipt Database culture TMA Khanewal in 2005 indicates that there is substantial potential of increase in revenues without enhancing the rates. It has been observed that service delivery potential of the TMA is weak because of its inability to meet all the expenditures. The record of TMA is old there is no practice of semiweekly update and observe system is weak. The study also noted that revenue generation can improve dramatically by improving record keeping through maintenance of disaggregated information of taxes and tax payers in all expound by the use of information technology . The study recommended computerisation of tax records, capa urban center twist of tax/revenue staff, and increase in transparency of tax records, wider dissemination of information about tax policies, rates and procedures through brass of people friendly frameworks.Research MethodologyThe paper examines the current financial situation of district Multan and identifies areas of potential improvement. It also recommends areas that need restructuring and jural reforms to kick in about the change that would not only improve systems but would make it robust and ready for future day economic growth of the district, keeping in mind the potential the district.Mixed methodology including quantitative and qualitative tools was employed for data collection and analysis. more often than not speaking, it had the following 3 components. division 1 The first component involved conducting a comprehensive literary works review to canvass the national, regional and international trends in l ocal resource mobilisation and issues faced by the system. The range of sources accessed and reports/publications examined is broad and includes similar studies conducted for other districts in Pakistan (e.g. Khanewal) and elsewhere. Unfortunately, to the extent of Pakistan, the Khanewal study is so far the only study accessible as a reference for examination of local resource enhancement in the local government. great reliance, therefore, had to be placed on studies conducted in other countries. Nevertheless, the belles-lettres review helped in identifying the issues involved in local revenue enhancement (levy, mind and collection) and an examination thereof in a comparative perspective.The success of local governments to raise resources locally is largely contingent on framing appropriate laws and regularises in consonance with the earth realities. Therefore, an important part of the literature review exercise was to identify relevant laws, rules, regulations, notifications and circulars that in some evident manner impinge upon the resource mobilisation at district/tehsil level.Component 2 Along with the literature review an exercise was also undertaken to collect data for the District Government (DG) Multan and separately of the six Tehsil Municipal Administrations include in the two districts. A comprehensive template was developed to valuate data serene from various councils. It lists all major and minor sources of revenue for a local council the legal framework (law/rule/regulation) authorising its levy business process for assessment and collection the do budgeted against each tax/levy/fee/cess etc for each of the last foursome fiscal years 2007-10 budgetary revisions (if any) and collections actually realised.The budget documents for the last four years were used as the starting point and the amount budgeted for each source was picked from the budget documents.Component 3 A detailed analysis of receipts, expenditure, development initiativ es, review of business process and relevant legal provision and their issues was carried out.Component 4 Then a series of individual interviews were held. This included meeting the Tehsil Municipal Officers, Executive District Officers (Revenue, Finance and Planning, Municipal Services), various District Officers, Excise and taxation officials, Multan Development chest and Water and Sanitation Agency officials The suggestions and recommendations on the perspectives emanating from these interviews.Data Analysis and interpretationOverview of Public Finance (district government budget)Rs. in millionsDescription2006-072007-082008-09 outgoActualActualRENon-development2,762.803,912.514,066.98Development1,462.491,539.14882.19Development tied grant300.12512.19965.16 arrive4,525.415,963.845,914.34 origin of revenue2006-072007-082008-09Opening balance386.16995.151,086.13Provincial grants3,780.303,853.295,172.88Own Source revenue201.07149.37140.13 tied(p) grants (development and non-develop ment)475.84801.401,017.88 tote up4,853.375,726.647,417.02Revenue of the district is of two types i.e. Own source revenue and provincial transfers. In district Multan there is a heavy reliance on funding from provincial government since district OSR is about negligible. Efforts are needed to change the scenario and move the district towards sustainability A sharp rally of 37% in provincial grants could be noticed in the FY 2008-09 over FY 2007-08 endorsing districts dependence on these transfers. The provincial grants are transferred as per the PFC criteria which pass on be discussed in depth later in the chapter. tied grants being the second highest source has been transferred for development and non development expenses of the district government. For the FY 2008-09 the tied grants are Rs. 1,018m which constitute 13.7% of the essence sources. These grants are for item expenditure and are not in districts control. The own source revenue (OSR) of the district govt. forms a very insignificant amount (2%, 2008-09), rendering the district to rely heavily on provincial transfers. The OSR of the district has been on a decreasing trend comparingd to overall resource requirement. This is a major cause of concern as this not only increases dependence on provincial transfer but it also affects the autonomy of the district to make decisions. A sincere grounds to regenerate the taxes and their collection mechanism is required with the focus on generating more resource. In budget for FY 2009-10 there is an increase in OSR of 40% which includes musical theme of arrears that are more than 3 years old. These balances are very old and have been appearing in budget estimates for over more than 3 years. all the same the increase is still insignificant compare to the requirement of the district. A detailed analysis of item by item sources of income was done. Issues relating to a few significant items will be highlighted in the section of recommendations.Expenditures a re categorized in to two broad categories i.e. Development and Non development. The ratio of development vs. non development expenditure has changed over the years with a downward trend in development expenditure. This trend should be a cause of concern as the development projects loose priority to make way for funding current activities In 2006-07, 2007-08 and 2008-09 the ratio of non developmental expenses vs. development expenses is 61% to 39%, 66% to 34% and 69% to 31% respectively. This shows the declining trend of developmental budget. The year 2008-09 saw a drop in the allocation for developmental activities out of district government resources from Rs. 1,538 m in FY 2007-08 to Rs. 1,082 m in FY 2008-09. This broad reduction was fair compensated through increase in development expenditure through tied grants which rose from Rs. 512m in FY 2007-08 to Rs. 965m in FY 2008-09. In FY 2008-09 the budget estimate for development activities other than CCB and tied grants stood at Rs. 558 m for ongoing activities and Rs. 742 m for new activities. The rewrite estimate for same expenditure came out to be Rs. 656m. Which means that not only new activities were not initiated nor ongoing expenditure targets were met. The major reasons identified during tidings is the change in political setup in the province resulting in delay tactics for pecuniary resource transfer.The development budget for the district government consists of funds allocated towards yearly development program, Citizen Community board and tied(p) grants (provided by provincial government against specific development projects).In the FY 2009-10 the join budget for development stands at Rs. 2,749 m which is 38% of the kernel budget for this year. The sum of money allocation towards automatic data processing is Rs. 1,492 m which is 54% of the total development budget. This ADP has Rs. 966m as ongoing projects that have started in previous years. This is a large allocation and has taken up ap proximately 35% of the share from development budget. The new projects identified for the year are 19% of the total development budget. The ADP (ongoing and new) are mainly focused on following sectorsAnnual development program2009-10%SectorsRs. in millionsEducation214.34214%Health159.87712%Dist. Govt. facilities52.1663%Solid waste management26.1882%Sports47.143%General bus stand64.2594%Livestock and Fisheries24.0272%Firms to mart roads223.93115%Roads, Building and Roundabouts348.83723%Others332.03422%Total1492.801The to a higher place table reflects district governments priorities for sector development. The social services such as health and education take up 26% of the share whereas the roads interlock takes up 38% of the allocation.Overview of Public Finance (All 6 TMAs)Rs. in millionsDescription2006-072007-082008-09ExpenditureNon-development251247326Development470449584Total721697910Source of revenue2006-072007-082008-09Provincial grant246303290Own Source revenue293339414Tota l540642704There are 6 TMAs in the district and all of them have a reasonable amount of OSR to help them fund their activities. However there is still potential to increase their revenue specially taxes that form a major component of their OSR. Receipts of TMA consist of provincial transfer and OSR. In TMAs OSR contributes significantly. The ratio of share of OSR has in fact increased in FY 2008-09. This is a positive sign as far the TMAs ability to make decisions is involved. However there is still room for increase in revenue. The major source being taxes should be tapped into for more efficiency. It is worth noting, looking at the combined figures for all 6 TMAs, that the OSR in all the 3 FY under discussion has been sufficient to fund the non development activities even leaving a surplusage to be worn-out(a) on development activities.The development vs. non development expenses are more or less consistent at a ratio of 6436 over the last 3 years. The above table shows the cras h up of development expenditure for the TMA. The allocation towards development expenditure is 64% of the total outlay. It has remained at this level over last 3 years. The allocation in FY 2008-09, which comprises of the annual development projects, CCB percentage and defrayal against liabilities amounts to Rs. 255m, Rs. 262m and Rs. 66 m, respectively. Payments against these liabilities were frozen by the government of Punjab and have asked the TMAs to present these liabilities as new projects under the ADP. Optimistic plan and change in political setup at the provincial level resulted in huge payment liabilities being carried forward to the next year.PFC award This is another source of income for the DG and TMAs. The criteria for distributing the PFC grant is specified by the Punjab Government and takes into consideration the population and socio economic indicator of the district (GOP, Budget livid Paper, 2009-10)The district government and the TMAs have induced funds at a round 5% level from the provincial allocation over last 4 years. If we take a simple benchmark of population to compare the level of funding, Multan district has 4.26% population of Punjab (GOP, Punjab Development Statistics, 2009). This reflects that district Multan has been receiving fair share of the pie.2006-072007-082008-092009-10Resources transfer by country toDG90,79496,95299,413108,822TMA13,54114,43115,32015,209Total104,335111,383114,733124,031Allocation to DG and TMAs of Multan4,512.564,885.026,480.436,108.37% share4.325%4.386%5.648%4.925%PopulationPunjab87,54889,03690,55092,089Multan3,7273,7923,8583,925% population4.26%4.26%4.26%4.26%Recommendations commercial enterprise process and legal reformsIn this section we will focus our discussion on business process and relevant legal reforms to help identify areas of improvement.Section 116 of PLGO 2001 empowers the council to impose, increase, reduce, abolish, suspend and/or exempt any tax mentioned in the second schedule the re in. However the section also mentioned that any amendment to taxes is vetted by the provincial government. This process hampers the local governments autonomy to set their own tax rates as the provincial government plays a exacting role. If full autonomy to fix rates etc. is not to be devolved, thence the issue can be resolved by providing band widths within which the DGs and the TMAs would be free to act.To predict the issue of stale process it is recommend that automation of business process, a comprehensive revenues base assessment and capa urban center building of staff should take place.The automation of business processes would result in better accounting, efficiency in tax collection mechanism hence increasing revenue, provide up to date databases, availableness of information to be used by various department and timely reporting.It has been assessed that without increasing the rates of present taxes the yield can improve dramatically by maintaining records/registers pro perly, regular survey and incorporation of changes in tax records, improved monitoring and inclusion of systems of rewards and punishments for tax collecting machinery.Capacity and training of staff are full of life to success of any initiative for enhancement of own source revenues. Local government officials dealing with these issues (in many cases) do not have up to date information about government laws and rules. Training with respect to financial management and procurement plus IT is also critical for bringing positive change.Low conceding taxes/fees are an administrative hassle for the collecting authority and they should be done away with or their rates be revised upwards to increase revenue.Dissemination of information about process, assessments, valuation table, and fees would help curtail corruption. One of the major reason people fall in the trap of providing kick backs is lack of information. This information could be made available through IEC material, notices in ne wspapers, display through posters in relevant offices and media cognisance campaign.The business process of all OSR items such as taxes, rents and fees and user charge in the DGs and TMAs have by and large been defined a long time ago and the current LG setup has inherited them. There has not been any significant investment in review and reform of business processes of the taxes. Our research has shown that many improvements in the system can result from identification and removal of various loopholes and weaknesses in the processes. We recommend a comprehensive effort to be made to overhaul these processes which would result in collection efficiencies and significant improvement in tax payer facilitation.A quality control mechanism should be introduced to check functioning of various departments in the district. finaleThis study briefly discusses the financial position of District Multan. It also carries out the financial analysis of the current situation and identifies issues fac ed by the local government. The major issues highlighted are capacity of the local government and the will to address issues.Multan being the 5th largest city of Pakistan has the potential to grow economically. It is well geographically well positioned since it lies in the middle of the trade route connecting south with north. A major initiative to revamp the systems would result in positive outcome for the people of the district. This paper also recommends few areas of improvement. A overmuch larger effort needs to go into this. Recommendations such as legal reforms, revamping business process, trainings and automation needs to be apply together to bring quick change. However this whole effort needs to be financed. The financing could take place with one or all of the following optionsLists of 11 properties were identified on a control basis. These properties/facilities are all in prime locations inside the city and are possess by the DG. We put up to sell of these properties and either abolished these facilities or relocate them to a more economical location. finished this proposal we would be able to raise Rs. 4,682 m. This in only the tip of iceberg, a more comprehensive study would reveal a lot more properties.Another area of resource generation is the property given on rent. The DG and TMA have many shops, stores and buildings that have been rented out. One of the ways forward could be to revise the rents and bring them at market level. Another option is to sell out these properties on market value and receive a good cash inflow that could be used for major initiatives.There are many government educational institutions with city limits many of them being on prime locations. A designated education city should be developed and all these institution should be shifted. A cost get analysis should be carried out to assess the potential of this option.Municipal bond is issued by a city or municipal bodies. The bond holders receive Interest income. Munici pal securities consist of both short-term issues (often called notes, which typically mature in one year or less) and long-term issues (commonly known as bonds, which mature in more than one year). Short-term notes are used by an issuer to raise money for a florilegium of reasons in first moment of future revenues such as taxes, state or federal aid payments, and future bond issuances to cover irregular cash flows meAnalysis of Local Government Finances in Multan DistrictAnalysis of Local Government Finances in Multan DistrictAbstractPublic finance deals with the financial management of public entities. This paper provides an overview of the financial affairs of local government of district Multan and identifies issues faced by the systems to deliver efficiently and effectively. It also highlights areas or improvement and opportunities to fund these activities. The district government heavily relies on the provincial grants and has very limited self generated revenue. Although it is responsible to manage various institutions of social services and carry out developmental activities in the district, its reliance on provincial grants make its effort less effective. TMA on the other hand have significant revenue generation and use this to their advantage and work with autonomy. However they still rely on provincial grants for any developmental activities. The stale business process and hurdles in the legal framework also contribute significantly towards the in efficiency of the systems. There are solutions that can help turn around the situation but it needs a sincere effort on part the provincial and local government. Automation and legal reforms could cover a lot of issues. They would not only increase efficiency but would help curtail corruption at various levels. However strong political could change the scene altogether. A comprehensive process was adopted in collecting secondary data through official documents, template and meetings with officials. Distri ct Multan was chosen due to its importance specially in the current political setup and based on convenience.IntroductionDespite some modest achievements, the economic and social progress in Pakistan has been far from satisfactory during the last more than five decades of independence. Average annual growth rate of 6.8, 4.8, 6.5 and 4.6% (Government of Pakistan, 2003) respectively in the decades of 60s, 70s, 80s and 90s is not comparable with the rapid economic progress made by South Korea, Malaysia, China and many other countries which were initially at nearly the same level of economic development (or even below) as that of Pakistan. The performance on social indicators has been gloomier. Despite average figures for economic growth, many countries like Vietnam and Cuba have been able to eradicate illiteracy and have achieved health statistics comparable with developed countries (Zaidi, 2000). Pakistan still ranks at the tail end of social development ranking.Pakistan is also a sig natory to the Millennium Declaration, a landmark event showing commitment of political, corporate and civil society leadership to eliminate extreme hunger and poverty and to improve education, health, gender and environment situation through global partnerships for development. A study of the progress achieved on achieving the Millennium Development Goals (MDGs) shows that the performance of Pakistan has not been noteworthy in the decade of 90s. There has been a gradual convergence of opinion amongst all stakeholders government, civil society as well as international development partners that the failure in social sectors is a direct outcome of the crisis of governance and macro economic imbalances. Further, there is a broad consensus that governance cannot be improved without a meaningful devolution of authority to functional tiers and without ensuring peoples participation in decision making processes at all levels.This stakeholder consensus provided the necessary impetus for th e present government to introduce its devolution reforms conceived in 2000 and launched simultaneously in all provinces of Pakistan through introduction of Local Government Ordinances in 2001.Until the promulgation of Local Government Ordinances, the elected local government tiers had a precarious existence depending upon the will of the provincial governments. Many times these would be dissolved and un-elected administrators appointed. Working under the ambit of Local government Ordinances of 1979, there were urban and rural local councils. While urban local councils consisted of Metropolitan/Municipal Corporations and Municipal/Town committees, the rural councils were called District Councils and Union Councils. Traditionally the local councils in Pakistan have performed municipal functions like water supply, sanitation, solid waste management, fire fighting, maintenance of slaughter houses, promotion of cattle markets, fairs and exhibitions and street lighting. They also had vary ing roles in primary and preventive health care, maternal and child health, promotion of literacy and rural infrastructure development.Devolution reforms in Pakistan, introduced by the promulgation of Local Government Ordinances of 2001 have provided a 3-tier local government system consisting of District Government (DG), Tehsil/Town Municipal Administration (TMA) and Union Administrations (UA). Working under the direction and control of elected councils and Nazims, the present local government system attempts to create institutions and mechanisms for public participation in design, management, monitoring and control of social service delivery. Many of the functions previously performed by the local offices of provincial government departments now clearly fall within the domain of DGs. These reforms are aimed to increase local governments responsibility for efficient and effective social and municipal services delivery. Municipal functions with a wider scope are being carried out by Town Municipal Administrations and City District Governments (established initially in provincial headquarters but subsequently in selected big cities as well).Access to adequate resources for the local governments is now considered essential. Additional fiscal space is required for enhanced allocations for the social sector as well as infrastructure development. These resources are also required to meet the social deficits that have accumulated over the past due to inadequate funding coupled with low utilisation in social sectors. Devolution reforms, as originally conceived and articulated, envisaged large scale fiscal decentralisation to follow the administrative and political decentralisation. While a fiscal relationship has been forged between the province and the districts, an extensive reorganisation of resources has not taken place and the vertical financial imbalance stays in place with the major financial collections being made at the federal (and to a lesser extent at the provincial) level. On the other hand, the service provision has fallen at the DG level where the tax base and collection potential is the lowest.Courtesy Decentralization Support Program, Role Book 4-day workshop for elected local leadershipResultantly, the biggest challenge facing the local councils in Pakistan (which are more empowered today and have a wider scope of functions than ever) is to ensure consistent, reliable and fool proof mechanisms of transfers from provincial governments and to expand own source revenues in order to provide efficient and effective service delivery as envisaged in devolution reforms.Public Financeis that part of finance which hovers around the central question of allocation of resources subjected to the budget constraint of the government or public entities. It is that branch of economics which identifies and appraises the means and effects of the policies of the government. Public sector finance tries to examine the effects and consequences of dif ferent types of taxation and expenditures on the economic agents (individuals, institutions, organizations, etc.) of the society and ultimately on the entire economy. Public finance also analyzes the effectiveness of the policies aimed at certain objectives and consequently to the development of procedures and techniques for increasing the effectiveness of the policy (Economy Watch, 2010).Literature ReviewMuch of the functional autonomy of the local governments depends upon their ability to raise the required resources from their own sources and to get the balance from the provincial/federal government through consistent and assured mechanisms. This requires not only devising institutional mechanisms for formula and criteria based fiscal transfers but also exploring revenue potentials of local own source revenues. These own source revenues can be in the form of taxes and fees for services provided. It is quite surprising that despite the significance of this, very few local studies have been carried out to examine the resource potential of the local bodies in Pakistan.Poverty Reduction Strategy Papers (PRSP) of Pakistan, formulated after considerable debate and input from all major stakeholders, admits that the local governments depend primarily upon fiscal transfers from provincial governments and recognises the need for local revenue mobilisation as an important activity for the sustainability of local government system.Factors steeped in political economy and elite structures have influenced local revenue generation decisions. Howe and Reeb (1997) conducting a survey of the local tax system in USA since the colonial times have determined that economic and political considerations have influenced the tax systems.Bird (2000) gives the desirable characteristics of a local tax. First, the tax base should be relatively immobile so that local governments can vary the rates without losing a significant portion of the base. Second, the tax yield should be adequate to meet the local needs, increase overtime as expenditure increases, and be relatively stable and predictable. Third, the tax should be one that is not easy to export to non residents. Fourth, the tax base should be visible to ensure accountability. Fifth, the tax payers should perceive the tax to be reasonably fair. Sixth, the tax should be reasonably easy to administer.According to Bird (1999), international experience tells that the most responsible and accountable local governments are those that raise their own revenues and set their own tax rates. Meaningful local autonomy and accountability can only take place if the local governments are able to set their own tax rates. In Pakistan, on the other hand, provincial government has the power to vet the tax proposal and no tax can be levied by a local council without publication in official gazette.Kitchen and Slack (2003) after a comprehensive analysis of local taxes in developed world, including Canada, are of the view that in o rder to meet the growing needs of municipalities, it is mandatory that new resources in addition to the traditional property tax and user fees must be explored.There is little autonomy in preparing district development and non development budgets because of inability to convey the quantum of provincial transfers and vertical programmes. There is more budgetary certainty in TMAs because of increased reliance on OZT replacement tax and own source revenues. Formula based transfers to districts through Provincial Finance Commission (PFC) awards have several weaknesses. District governments have weak tax base in terms of buoyancy and potency of taxes assigned. Urban Immovable Property Tax (UIPT) assigned to TMAs is a buoyant tax but there are administrative confusions.According to Shah et al. (1996) and World Bank (2000) the existing provincial taxes and user charges are inefficient and inequitable and are incapable of meeting significant share of provincial expenditures. Frequently chan ging and low yield tax instruments with poor tax records create incentives for tax evasion. Considering that agriculture contributes approximately 25% of the GDP in Pakistan, it is estimated that a properly enforced Agricultural Income Tax (AIT) could generate over Rs. 500 million in NWFP only. Presently due to collusion between revenue officials and landowners, lack of understanding, improper assessment and poor collection by the tax collectors, very little of the potential is realised.Bahl (2004) states that in the contemporary world nearly 80 countries are implementing fiscal decentralisation policies. Local government should have the power to define revenue bases, set tax rates and raise taxes. A good tax system should be administratively feasible, revenue burden should correspond to the general condition of local economy, revenue yield should be stable and it should be adequate both for payer and local government.A research study carried out by Provincial Program Support Office , DSP, Punjab Tax and Non Tax Receipt Database Development TMA Khanewal in 2005 indicates that there is substantial potential of increase in revenues without enhancing the rates. It has been observed that service delivery potential of the TMA is weak because of its inability to meet all the expenditures. The record of TMA is old there is no practice of periodic update and monitoring system is weak. The study also noted that revenue generation can improve dramatically by improving record keeping through maintenance of disaggregated information of taxes and tax payers in all details by the use of information technology. The study recommended computerisation of tax records, capacity building of tax/revenue staff, and increase in transparency of tax records, wider dissemination of information about tax policies, rates and procedures through establishment of people friendly frameworks.Research MethodologyThe paper examines the current financial situation of district Multan and identifie s areas of potential improvement. It also recommends areas that need restructuring and legal reforms to bring about the change that would not only improve systems but would make it robust and ready for future economic growth of the district, keeping in mind the potential the district.Mixed methodology including quantitative and qualitative tools was employed for data collection and analysis. Broadly speaking, it had the following three components.Component 1 The first component involved conducting a comprehensive literature review to see the national, regional and international trends in local resource mobilisation and issues faced by the system. The range of sources accessed and reports/publications examined is broad and includes similar studies conducted for other districts in Pakistan (e.g. Khanewal) and elsewhere. Unfortunately, to the extent of Pakistan, the Khanewal study is so far the only study available as a reference for examination of local resource enhancement in the loc al government. Greater reliance, therefore, had to be placed on studies conducted in other countries. Nevertheless, the literature review helped in identifying the issues involved in local taxation (levy, assessment and collection) and an examination thereof in a comparative perspective.The success of local governments to raise resources locally is largely contingent on framing appropriate laws and rules in consonance with the ground realities. Therefore, an important part of the literature review exercise was to identify relevant laws, rules, regulations, notifications and circulars that in some distinct manner impinge upon the resource mobilisation at district/tehsil level.Component 2 Along with the literature review an exercise was also undertaken to collect data for the District Government (DG) Multan and each of the six Tehsil Municipal Administrations included in the two districts. A comprehensive template was developed to standardise data collected from various councils. It l ists all major and minor sources of revenue for a local council the legal framework (law/rule/regulation) authorising its levy business process for assessment and collection the amount budgeted against each tax/levy/fee/cess etc for each of the last four fiscal years 2007-10 budgetary revisions (if any) and collections actually realised.The budget documents for the last four years were used as the starting point and the amount budgeted for each source was picked from the budget documents.Component 3 A detailed analysis of receipts, expenditure, development initiatives, review of business process and relevant legal provision and their issues was carried out.Component 4 Then a series of individual interviews were held. This included meeting the Tehsil Municipal Officers, Executive District Officers (Revenue, Finance and Planning, Municipal Services), various District Officers, Excise and taxation officials, Multan Development Authority and Water and Sanitation Agency officials The sug gestions and recommendations on the perspectives emanating from these interviews.Data Analysis and interpretationOverview of Public Finance (district government budget)Rs. in millionsDescription2006-072007-082008-09ExpenditureActualActualRENon-development2,762.803,912.514,066.98Development1,462.491,539.14882.19Development tied grant300.12512.19965.16Total4,525.415,963.845,914.34Source of revenue2006-072007-082008-09Opening balance386.16995.151,086.13Provincial grants3,780.303,853.295,172.88Own Source revenue201.07149.37140.13Tied grants (development and non-development)475.84801.401,017.88Total4,853.375,726.647,417.02Revenue of the district is of two types i.e. Own source revenue and provincial transfers. In district Multan there is a heavy reliance on funding from provincial government since district OSR is almost negligible. Efforts are needed to change the scenario and move the district towards sustainability A sharp rise of 37% in provincial grants could be noticed in the FY 20 08-09 over FY 2007-08 endorsing districts dependence on these transfers. The provincial grants are transferred as per the PFC criteria which will be discussed in depth later in the chapter. Tied grants being the second highest source has been transferred for development and non development expenses of the district government. For the FY 2008-09 the tied grants are Rs. 1,018m which constitute 13.7% of the total sources. These grants are for specific expenditure and are not in districts control. The own source revenue (OSR) of the district govt. forms a very insignificant amount (2%, 2008-09), rendering the district to rely heavily on provincial transfers. The OSR of the district has been on a decreasing trend compared to overall resource requirement. This is a major cause of concern as this not only increases dependence on provincial transfer but it also affects the autonomy of the district to make decisions. A sincere effort to revamp the taxes and their collection mechanism is requ ired with the focus on generating more resource. In budget for FY 2009-10 there is an increase in OSR of 40% which includes estimation of arrears that are more than 3 years old. These balances are very old and have been appearing in budget estimates for over more than 3 years. However the increase is still insignificant compare to the requirement of the district. A detailed analysis of item by item sources of income was done. Issues relating to a few significant items will be highlighted in the section of recommendations.Expenditures are categorized in to two broad categories i.e. Development and Non development. The ratio of development vs. non development expenditure has changed over the years with a downward trend in development expenditure. This trend should be a cause of concern as the development projects loose priority to make way for funding ongoing activities In 2006-07, 2007-08 and 2008-09 the ratio of non developmental expenses vs. development expenses is 61% to 39%, 66% to 34% and 69% to 31% respectively. This shows the declining trend of developmental budget. The year 2008-09 saw a drop in the allocation for developmental activities out of district government resources from Rs. 1,538 m in FY 2007-08 to Rs. 1,082 m in FY 2008-09. This huge reduction was somewhat compensated through increase in development expenditure through tied grants which rose from Rs. 512m in FY 2007-08 to Rs. 965m in FY 2008-09. In FY 2008-09 the budget estimate for development activities other than CCB and tied grants stood at Rs. 558 m for ongoing activities and Rs. 742 m for new activities. The revised estimate for same expenditure came out to be Rs. 656m. Which means that not only new activities were not initiated nor ongoing expenditure targets were met. The major reasons identified during discussion is the change in political setup in the province resulting in delay tactics for funds transfer.The development budget for the district government consists of funds allocate d towards Annual development program, Citizen Community board and Tied grants (provided by provincial government against specific development projects).In the FY 2009-10 the total budget for development stands at Rs. 2,749 m which is 38% of the total budget for this year. The total allocation towards ADP is Rs. 1,492 m which is 54% of the total development budget. This ADP has Rs. 966m as ongoing projects that have started in previous years. This is a large allocation and has taken up approximately 35% of the share from development budget. The new projects identified for the year are 19% of the total development budget. The ADP (ongoing and new) are mainly focused on following sectorsAnnual development program2009-10%SectorsRs. in millionsEducation214.34214%Health159.87712%Dist. Govt. facilities52.1663%Solid waste management26.1882%Sports47.143%General bus stand64.2594%Livestock and Fisheries24.0272%Firms to market roads223.93115%Roads, Building and Roundabouts348.83723%Others332.03 422%Total1492.801The above table reflects district governments priorities for sector development. The social services such as health and education take up 26% of the share whereas the roads network takes up 38% of the allocation.Overview of Public Finance (All 6 TMAs)Rs. in millionsDescription2006-072007-082008-09ExpenditureNon-development251247326Development470449584Total721697910Source of revenue2006-072007-082008-09Provincial grant246303290Own Source revenue293339414Total540642704There are 6 TMAs in the district and all of them have a reasonable amount of OSR to help them fund their activities. However there is still potential to increase their revenue specially taxes that form a major component of their OSR. Receipts of TMA consist of provincial transfer and OSR. In TMAs OSR contributes significantly. The ratio of contribution of OSR has in fact increased in FY 2008-09. This is a positive sign as far the TMAs ability to make decisions is involved. However there is still room for increase in revenue. The major source being taxes should be tapped into for more efficiency. It is worth noting, looking at the combined figures for all 6 TMAs, that the OSR in all the 3 FY under discussion has been sufficient to fund the non development activities even leaving a surplus to be spent on development activities.The development vs. non development expenses are more or less consistent at a ratio of 6436 over the last 3 years. The above table shows the break up of development expenditure for the TMA. The allocation towards development expenditure is 64% of the total outlay. It has remained at this level over last 3 years. The allocation in FY 2008-09, which comprises of the annual development projects, CCB contribution and payment against liabilities amounts to Rs. 255m, Rs. 262m and Rs. 66 m, respectively. Payments against these liabilities were frozen by the government of Punjab and have asked the TMAs to present these liabilities as new projects under the ADP. Optimis tic planning and change in political setup at the provincial level resulted in huge payment liabilities being carried forward to the next year.PFC award This is another source of income for the DG and TMAs. The criteria for distributing the PFC grant is specified by the Punjab Government and takes into consideration the population and socio economic indicator of the district (GOP, Budget White Paper, 2009-10)The district government and the TMAs have received funds at around 5% level from the provincial allocation over last 4 years. If we take a simple benchmark of population to compare the level of funding, Multan district has 4.26% population of Punjab (GOP, Punjab Development Statistics, 2009). This reflects that district Multan has been receiving fair share of the pie.2006-072007-082008-092009-10Resources transfer by Province toDG90,79496,95299,413108,822TMA13,54114,43115,32015,209Total104,335111,383114,733124,031Allocation to DG and TMAs of Multan4,512.564,885.026,480.436,108.3 7% share4.325%4.386%5.648%4.925%PopulationPunjab87,54889,03690,55092,089Multan3,7273,7923,8583,925% population4.26%4.26%4.26%4.26%RecommendationsBusiness process and legal reformsIn this section we will focus our discussion on business process and relevant legal reforms to help identify areas of improvement.Section 116 of PLGO 2001 empowers the council to impose, increase, reduce, abolish, suspend and/or exempt any tax mentioned in the second schedule there in. However the section also mentioned that any amendment to taxes is vetted by the provincial government. This process hampers the local governments autonomy to set their own tax rates as the provincial government plays a controlling role. If full autonomy to fix rates etc. is not to be devolved, then the issue can be resolved by providing band widths within which the DGs and the TMAs would be free to act.To address the issue of stale process it is recommend that automation of business process, a comprehensive revenues base asse ssment and capacity building of staff should take place.The automation of business processes would result in better accounting, efficiency in tax collection mechanism hence increasing revenue, provide up to date databases, availability of information to be used by various department and timely reporting.It has been assessed that without increasing the rates of present taxes the yield can improve dramatically by maintaining records/registers properly, regular survey and incorporation of changes in tax records, improved monitoring and inclusion of systems of rewards and punishments for tax collecting machinery.Capacity and training of staff are critical to success of any initiative for enhancement of own source revenues. Local government officials dealing with these issues (in many cases) do not have up to date information about government laws and rules. Training with respect to financial management and procurement plus IT is also critical for bringing positive change.Low yielding ta xes/fees are an administrative hassle for the collecting authority and they should be done away with or their rates be revised upwards to increase revenue.Dissemination of information about process, assessments, valuation table, and fees would help curtail corruption. One of the major reason people fall in the trap of providing kick backs is lack of information. This information could be made available through IEC material, notices in newspapers, display through posters in relevant offices and media awareness campaign.The business process of all OSR items such as taxes, rents and fees and user charge in the DGs and TMAs have mostly been defined a long time ago and the current LG setup has inherited them. There has not been any significant investment in review and reform of business processes of the taxes. Our research has shown that many improvements in the system can result from identification and removal of various loopholes and weaknesses in the processes. We recommend a comprehe nsive effort to be made to overhaul these processes which would result in collection efficiencies and significant improvement in tax payer facilitation.A quality control mechanism should be introduced to check functioning of various departments in the district.ConclusionThis study briefly discusses the financial position of District Multan. It also carries out the financial analysis of the current situation and identifies issues faced by the local government. The major issues highlighted are capacity of the local government and the will to address issues.Multan being the 5th largest city of Pakistan has the potential to grow economically. It is well geographically well positioned since it lies in the middle of the trade route connecting south with north. A major initiative to revamp the systems would result in positive outcome for the people of the district. This paper also recommends few areas of improvement. A much larger effort needs to go into this. Recommendations such as legal reforms, revamping business process, trainings and automation needs to be implemented together to bring quick change. However this whole effort needs to be financed. The financing could take place with one or all of the following optionsLists of 11 properties were identified on a pilot basis. These properties/facilities are all in prime locations inside the city and are owned by the DG. We propose to sell of these properties and either abolished these facilities or relocate them to a more economical location. Through this proposal we would be able to raise Rs. 4,682 m. This in only the tip of iceberg, a more comprehensive study would reveal a lot more properties.Another area of resource generation is the property given on rent. The DG and TMA have many shops, stores and buildings that have been rented out. One of the ways forward could be to revise the rents and bring them at market level. Another option is to sell out these properties on market value and receive a good cash inflow that could be used for major initiatives.There are many government educational institutions with city limits many of them being on prime locations. A designated education city should be developed and all these institution should be shifted. A cost benefit analysis should be carried out to assess the potential of this option.Municipal bond is issued by a city or municipal bodies. The bond holders receive Interest income. Municipal securities consist of both short-term issues (often called notes, which typically mature in one year or less) and long-term issues (commonly known as bonds, which mature in more than one year). Short-term notes are used by an issuer to raise money for a variety of reasons in anticipation of future revenues such as taxes, state or federal aid payments, and future bond issuances to cover irregular cash flows me