Revenue Collections and Local Government: An evaluation of Akkaraipattu

Municipal Council of Sri Lanka (2011-2012)

Seen Mohamed Aliff

South Eastern University of Sri Lanka, Oluvil, Sri Lanka

smaliff@seu.ac.lk

Abstract

As the life-blood of every state, revenue refers to the income of government at any level.

Revenue is critical as it determines to a large extent how much money will be available for

spending. Revenue for government spending is generally raised from taxes, levies, service fees,

and licenses. Local governments differ in the extent to which they can raise sufficient funding

within the local government area for the services for which they are responsible. Therefore,

local governments receive a smaller or larger part of their funding from revenue raised at their

territory level. Furthermore, the ways in which revenue is raised have implications for equity

and economic stimulation. For a number of reasons, local governments have responsibilities for

the development of certain sectors of the economy by providing a limited range of social

services and public amenities. In the recent years, administering revenue generation has

transcended all known considerations in importance because the extent to which local

government executed its development projects depends, largely, on the amount of revenue

generated. Each local government body of any state has a number of ways through which it

denied revenue required to meet up its public expenditure needs. It is in view of this that the

challenge is taken to examine the sources of revenue as well as problems encountered in

revenue generation in the Municipal Council of Sri Lanka. This study focuses on the revenue

collections and related issues in Akkaraipattu Municipal Council in Sri Lanka. The prime

objective of this study is to evaluate the revenue collections of the Municipal Council from the

last two years. The fundamental questions of this research are: how does the local body

generate the income, what are the problems faced by the council during revenue collection, and

how can they improve their revenue collection at the local level.

Key Words: Local Government, Revenue & Local Government, Income, Expenditure, Sri Lanka

Introduction

This study is based on an interpretive approach. The data were collected from both

primary and secondary sources. In addition to primary sources, qualitative interviews were

conducted with all representatives of council and a particular number of voters. Secondary

sources such as published and unpublished records, both from different levels of government

and from NGOs, were also consulted. Finally this study provides appropriate recommendations

to improve revenue collections in the studied area.

Revenues as concept

Revenue refers to the income of government. It is critical as it determines to a large

extent how much money will be available for spending. Without income, there will be no

budget, and thus no spending. Revenue for government spending is generally raised from

taxes, levies, service fees, and licenses. Local governments differ in the extent to which they

can raise sufficient funding within the municipality for the services for which they are

responsible. Therefore, local governments receive a smaller or larger part of their funding from

revenue raised at national level, known as the National Revenue Fund. Furthermore, the ways

in which revenue is raised have implications for equity and economic stimulation.

Revenue collected by the local government bodies is, in most cases, the main supply of

income for local government and is referred to as own revenue. At local government level, own

revenue is normally regarded as operating revenue. Operating expenses refers to money spent

on items that are consumed during a year, including salaries, consumables, administrative

items, and so forth. The capacity of a local body to deliver services is highly dependent on its

ability to bill and collect revenue from its own resources. Revenue collection has long been a

major financial problem for local government bodies. Many households with large debts are

poor, and there is little prospect of recovering their arrears. Resolving arrears is an important

challenge for municipalities. The role of local owned revenue is considered small in total local

revenue. Moreover, most of taxes and user charges are not buoyant and derived from a narrow

tax base. It is also complicated with weak revenue planning and administration. Regions with

small revenue capacity are obligated for a block grant transfer from central government.

However, high dependency on transfers from central government in the past had created

unstable flow of revenue for local government. In the past, a late transfer or ‘uncorrected

amount of transfer’ had caused a significant problem for local government, especially in their

budgeting process.

The success of local revenue generation is closed related to the management of local

revenue in the area (territory). Basically, there are five major categories of local tax policies

that could be implemented by local government. Those categories include; enlarging local

revenue base, controlling, tax collection requirements, administration and better revenue

planning.

One of the ways to improve revenue performance is enlarging local revenue base.

There are four types of action that should have been taken by local authorities in order to

achieve that. They are:

• Identifying new or potential taxpayers and ratepayers.

• Improving object databases.

• Improving valuation (reassessment of tax objects).

• Calculating the revenue capacity for each type of levy.

Local revenue is important to local governments for a number of reasons like

promoting the autonomy of local governments, maintaining and sustaining investment and

savings, meeting the co-funding and borrowing obligations, financial council operations and

funding other locally prioritized services and projects (Surrey, 1974). Local revenue collection

has to comply with certain general principles of raising revenue and how these principles

should be fair, convenient and certain. The collection and administration of revenue must be

economical to the collectors and administrators (Katarikawe, 1996). The sources of funds are

very wide. But the collection of some of these sources has not been so easy. For example,

recovery of fines and penalties from courts, stamp duties, revenue from vested properties and

even the payments for services rendered to public authorities have not been so easy though

specified in law. The delays in receipt of such money have been considerable and all efforts to

obtain money from some of the semi-government authorities have not been fully successful.

Local Government system in Sri Lanka

Looking into the history of local government in Sri Lanka it becomes clear that there

had been a high degree of autonomy to village communities prior to the colonial rule. A well-

organized system of local government, called Gam Sabhas or village assemblies were

responsible for all local affairs such as use and management of local resources, settlement of

dispute, cultural activities, etc. (Gooneratne & Jayasinghe, 2012).

During the colonial period (1505-1948) the old Gam Sabhas system seemed to have

virtually vanished. A different system of local government was introduced by the British (1796-

1948) during the latter part of their administration. The first to create were the municipal

councils of Colombo and Kandy in 1885. They were modeled on the British system of local

government, nevertheless with restricted powers and functions. Thus local government

institutions started by the British were products of colonial policy of the period and came under

the control of the Provincial Administration, and were viewed by the people as organs of the

British bureaucratic machines rather than institution indigenous to them, to which they were

accustomed (TressieLeitan, 1977).

A proper system of local government institution came under the Donoughmore

constitution of 1931 with the introduction of the universal franchise. However, the local

government system became fully systematized in 1936 with four-tier system with separate

ordinances for Municipal Council (MC), Urban Council (UC), Town Council (TC) and Village

Councils (VC). Two new types of councils-the Urban Councils and Town Councils became

introduced in 1936, therefore, it can be considered as the beginning of a modern local

government system in Sri Lanka with roots dating back to 1924 (first Village Council) and 1885

(first Municipal Council) (Kanesalingam, 1971).

At the top of the system, there were Municipal Councils constituted for cities and larger

towns, while urban councils were created for other urbanized areas. There were similarities

between the two types of the institutions. Similarly Village Councils meant to cater to the rural

people, while small towns within those areas came under the administration of the Town

Councils. The initial four layer system (1924-1987) was converted into a three layer system in

1987 as PradeshiyaSabhas (Divisional Council), Urban Councils and Municipal Councils, the

present existing model. In this conversion, the earlier village councils and town councils were

amalgamated to create Divisional Councils and they could be considered the backbone of the

local government system in the Island. Local government is enshrined in the 13th Amendment

to the Constitution in 1987, which states that “Local authorities will have the powers vested in

them under existing law, the Municipal Councils Ordinance and the Urban Councils Ordinance”

(13th Amendment to the Constitution of Sri Lanka, 1987).The main Acts relating to local

government authorities are(1).Municipal Council Ordinance No.61 of 1947 (as amended) and

(2).Urban Council Ordinance No. 61 of 1939 (as amended) and (3).Pradeshiya Sabha Act No.

15 of 1987 (Marga, 2011).

According to the existing laws and local government ordinances, MCs enjoy more

power in compare to other local bodies. The duties of the three bodies of local government

are broadly similar, particularly in relation to maintenance and lighting of roads and

thoroughfares, public health and sanitation and public utility services. According to Municipal

Council Act for instance, Municipalities are “charged with the regulation, control and

administration of all matters relating to the public health, public utility services and public

thoroughfares and generally with the protection and promotion of the comfort, convenience

and welfare of the people and the amenities of the Municipality” (Marga, 2011). However,

within the low level of funding, local governments depend on central government transfers for

upwards of 60% of their revenues. And, most of the transfers from central government to

provincial and local governments are earmarked for salaries and benefits; and less than 10%

of sub-national governments’ expenditures go towards capital investment.

However, not surprisingly, the majority of researchers, consultants and experts on local

government in Sri Lanka now consider that the PradeshiyaSabhas and Urban Councils are

lacking in basic management competency-indeed, some of the experts applied this same

generalization to most of the Municipal Councils (Wanasinghe, 1999). The Commission of

Enquiry on Local Government Reforms, established in 1999, suggested that there should be a

new development vision for local government. Further, it recommended that the vision should

address many matters, including representative system, gender balance in selecting council

members etc. (See: Kanthi Hemamalee Wijetunge, n.d.).

Revenue in Sri Lanka

According to Section 148 of the Constitution of Sri Lanka (1978), Parliament is supreme

as regards matters relating to public finance as it states – ‘Parliament shall have full control

over public finance, no tax, rate or any other levy shall be imposed by any local authority or

any other public authority except by or under the authority of a law passed by Parliament or

of any existing law’ (Constitution of Sri Lanka, 1978). The revenue of the Government of Sri

Lanka may be broadly classified under taxes, duties, forfeitures, fees, earnings (including

proceeds of sales), rent, profits, interest and annuities / annual payments. A ‘Tax’ is a

compulsory contribution from a citizen towards running of government operations. The

principal ‘direct tax’ where the burden of it cannot be shifted by the tax payer to someone else

is the income tax. The chief ‘indirect’ taxes are the Business Turn-over Tax (BTT), custom duties

and excise duties. Customs duty is a levy on goods that are imported or exported while an

excise duty is levied on goods that are produced and consumed locally. Since 1972-73 Financial

Year, the Consolidated Estimates of Revenue have been prepared in terms of the Standard

United Nations System of Classification consisting of fourteen Heads of Revenue- of which

eight refer to Current Receipts and six refer to Capital Receipts. estimates of revenue contains

the break-down of anticipated revenue (receipts) for a particular financial year, classified in

terms of heads of revenue, sub-heads, items and sub-items (Elangasekera, 1989: 155).

Ensuring that each level of government has adequate financial resources in relation to

its expenditure responsibilities is usually done either by assigning adequate tax rising powers

to each level, or by creating a system, ideally with a framework in the Constitution, through

which the proceeds of taxation raised by one government (most commonly the central

government) are allocated between all levels of governments. sometimes, the egalitarian

federalist principle that each constituent unit should have broadly the same resources

available to it as the others, so as to enable it to provide broadly the same standard of services

across the country, requires a system for fiscal equalization (AsangaWelikala, n.d:06). The most

reliable source of finance has been from the provincial councils. The Finance Commission gives

the grants for establishment and development purposes. Since under the Thirteenth

Amendment to the Constitution, all recurrent expenditures of local authorities are to be borne

by the government, the Finance Commission has to allocate funds for that purpose. Funds

required for development purposes are planned by the provincial council and submitted to the

Finance Commission for making provisions. Since there were difficulties to accommodate all

requests, there was a negotiating process, after which the total amounts for development

activities were decided upon.

Local Revenue

Local Government Authorities (LGA) largely depends on the public funds they collect

for operating revenues. LGA revenues can be divided into two types depending on the source

of funds. Own-source revenues are revenues that the LGA collects itself, such as rents, rates,

license fees, charges or fees for services provided, warrant costs, fines, penalties and other

miscellaneous revenue etc., and operating grants are funds that the LGAs receives as grants

from a higher level of government, either the Provincial Council (PC) or ministry. Own-source

revenue account for between 30% and 70% of expenditure in LGAs (Revenue Enhancement,

2008:7).

Block Grants

LGAs receive grants from the central government, usually through the PCs, and the

recurrent is the largest of the grants given to LGAs. It is provided as a block grant usually covers

the cost of salaries, overtime, pension, travelling etc. of the employees of the LGAs, which may

cover between 70% and 90% of total salary expenditure for local government employees. The

block grant which was made available to all the local authorities, based on a formula of

population and revenue. Another type of grant-in-aid is the assigned revenues which are

shares assigned from national revenues to the local authorities. Some of the major assigned

revenues include the firearms license duties, refund of stamps duties on land transactions,

excise license duties and notaries’ license duties. LGAs are dependent on the Ministry and the

PC for these funds in order to operate their local government. Without these grants the LGA

would not be able to provide services to citizens at all. However, this dependence on outside

sources for revenues inhibit and to sustain consistent levels of service delivery due to the

inconsistent nature of government funds. As Ursula K. Hicks (1955:122) has observed the

‘grants from the central government are an inevitable and indeed an indispensable element in

a modern system of local authority finance because they are at once the best means of

stimulus and control’.

Local Tax

The assessment tax is the major source of local revenue of the LGAs in Sri Lanka. This

tax based on the annual value of properties situated within all urban areas and in built up

localities of villages areas. The rate of tax livable varies with type of authority with the more

urban authorities enjoying higher percentage share of the annual value. The LGAs are

authorized to make and assess with the sanction of the Minister, any rate or rates on the

annual value of all houses and buildings of every description and of all lands and tenements

within the LGA area. The local council may require the owner or occupier of premises to furnish

returns of the rent or annual value for purposes of valuation.

Loans

Local government can also have resource to borrowing from the local loans and

development. Fund for development works, where the benefits of the capital investment is

realized over a number of years and where it would place a considerable burden on rates to

charge such an item in a given year. Another source of funding of LGAs that does not come

under the purview of the provincial council is the supply of funds through the decentralized

district budget. Here the members of Parliament decide on the amounts of money to be

invested in capital works in local authorities. While deciding on priorities, they may be

receptive to citizen groups, but not necessarily to elected representatives of local authorities.

This is particularly true in case an opposition party controls the local authority.

Non-Governmental Organization (NGO) Grants

The LGAs can receive grant from non-government organization for its development

activities in their areas. However, for a verity of reasons, local governments are getting grant

from NGO very little. In the past, local governments received grant from NGOs very rare due

to various reasons, but after the Tsunami devastation in Sri Lanka NGO grant for local

governments has been increased.

Background of Akkaraipattu Municipal Council (AMC)

Akkaraipattu is the second Municipal Council of Ampara District in the Eastern Province

of Sri Lanka. Ampara District is unique in having largest population of Muslim community in the

country. Although there are Sinhalese and Tamils in the district, in Akkaraipattu, nearly

99percentage people are Muslim and few Tamils also living in this area.

Map: I- Maps of Sri Lanka, Ampara District and Akkaraipattu Municipal Council

Source: Akkaraipattu Municipal Council, 2011

Akkaraipattu Municipal Council (hereafter, AMC) formed on 1st April 2011 by dividing

the territories of AkkaraipattuPradeshiyaShabha under the local government Act (Gazette of

SL 1686/30). Before it become as a Municipal Council, the areas of the present AMC were the

part of AkkaraipattuPradeshiyaShabha (APS) territory and constituted a population of nearly

39071 people as a whole. The newly formed AMC consists a population of 32338 (2011) and

23 sub divisions. Its total inhabitant area is 6.415 hectares in length. According to latest

population, male and female of AMC are 15865, 16473 respectively (based on Akkaraipattu

Divisional Secretariat report, 2011). Based on the population and other conditions, nine seats

were allocated for the AMC. Compare to other local government in Sri Lanka, Akkaraipattu MC

is situated in a very small area. Due to the lack of land allocation to the Muslim community by

the government of Sri Lanka, most of the Muslim local government areas in the Amparai district

have smaller than other communities particularly Sinhalese and people compelled to live

within highly dense areas which have been causing number of issues.

The Campaign for Free and Fair Elections (CaFFE), an independent election monitoring

organization, criticized the hasty creation of AMC, stating that Local Government Minister A.

L. M. Athaullah had not followed proper procedures and CaFFE pointed out that a Rural Council

(Predesiya Shaba) is usually promoted to Urban Council before being promoted to a Municipal

Council whereas AMC had received a ‘double promotion’ (Daily Mirror, 2011/01/08). It is to

note that Minister Athaullah is a resident of Akkaraipattu and Cabinet Minister for Provincial

Council and Local Government in the center. He formed National Congress, a new political

party, after expelled from Sri Lanka Muslim Congress which is a more influential party in the

Muslim of Sri Lanka. Athaullah’s support bases are Akaraipattu and some part of suburb and

adjourn areas of this district. He is one of the strong supporters of the ruling United People

Freedom Alliance (UPFA) government and has an alliance with the UPFA. When the

AkkaraipattuPradeniya Sabha was upgraded to MC, it was criticized as ‘Athaullah is trying to

gain political mileage from the elevation’ (The Sunday Times, 2011/01/09). After created as

MC, local government election was held in March 2011. The result was very clear, that the

minister’s party gained 8 seats out of nine and controlled the AMC without any difficulty.

Revenue in the AMC

AMC has been functioning as MC from 2011 April and it has been trying to increase its

revenue from rents, rates, services charges, and other income. According to AMC report 2011

(which is summarized in the Table-I) its total revenue was Rs. 17,926,628. In this statement, a

revenue grant was the major part of its revenue. It contributes around 41.30 % of total grant.

It was granted from central government as reimbursement for the recurrent costs. Next to

revenue grant rents was the highest revenue for the AMC. It was contributed around 25.11 of

total revenue and in which most revenue collected from render of animal slaughter, other

revenues were between 1.47 to 14.31 percent. The MC did not receive its warrant fees and

fine on time due to delay in the process (Hanifa.S.L.M, 2013). The AMC still faces such

challenges to get such revenue on time. There are so many proceeding in the revenue

collection of warrant fees and fines. There is another problem face by the AMC such as it does

not yet get revenue from assessment of property. Two reason behind on this. One is that the

AMC still not take step to collect the revenue and other is as it is being a newly formed MC,

AMC facing so may problem such as staff shortage, technical problem. If the AMC initiates

revenue collection from assessment of property it can increase its total revenue and it will pave

the way for increase the deposit.

Table 1: Revenue Statement for the period from 01/04/2011 to 31/12/2011

Details Income Percentage

Rates & Taxes 16,120 0.08

Rents 4,501,548 25.11

Licenses Fees 264,950 1.47

Charges for Services 3,172,856 17.69

Warrant Fees & Fines 125 0.00

Other Income 2,566,687 14.31

Revenue Grants 7,404,341 41.30

Total Revenue 17,926,628 100

Source: Akkaraipattu Municipal Council Annual Administrative Report 2011, p 18.

According to 2012 budget information (summarized in Table-II) from the AMC report,

its expected total revenue was 91,273,729. In this statement revenue grants was major part it

contributed around 81.2% which was granted from central government as reimbursement for

the recurrent costs. Next to revenue grant rents was highest revenue for the AMC it was

contributed around 7.53 of total revenue and in which most revenue collected was collected

from render of animal slaughter. Other revenues were between 1.17 to 4.02 percentages.

Table 2: AMC Budget 2012 (Expected)

Details Income Percentage

Rates & Taxes 2,000,000 2.29

Rents 6,877,729 7.53

License Fees 1,796,000 1.96

Charges for Services 1,735,000 1.90

Warrant fees & Fines 3,670,000 4.02

Other Income 1,075,000 1.17

Revenue Grants 74,120,000 81.20

Total Revenue 91,273,729 100

Source: Akkaraipattu Municipal Council Annual Budget Report 2012,

Although the AMC’s major revenue is revenue from the central government, some

steps have been taken by the AMC to increase its total revenue. According to the report of the

MC, its total revenue increased from 17,926,628 in 2011 to 91,273,729 in 2012. It is to note

that the warrant fees and fines were collected on time and was contributed around 4% of total

revenue. Both in 2011 and in 2012, the AMC did not take steps to collect revenue from the

property assessment. Due to various reasons the AMC’s total deposit is in the week position.

Following factors were identified during the field work as contribute to limiting the revenue

collection of AMC. They are:

• Compare with other municipalities in Sri Lanka AMC area length is very thin

• Property assessment tax not implemented

• Trade license tax not regularly collected due to political supporters running the trade

centers in some area such as market and bus stand places.

• NGOs and other grants are very limited and not regular.

• The AMC more depend on central government grant for it survival.

• Warrant fees and fines were not received by the MC on time due to strict regulation

followed by the other government institution.

• The smooth functioning of AMCs is very slow due to various reason such as recently

formed, staff shortages, poor administration, less qualified municipal members and so forth.

General Challenges Faced by the LGAs and AMC

A major cause of widespread frustration has been the inadequate sources of local

revenue and grants-in-aid, which prevented the local authorities from meeting the pressure of

service demands by the local community. For this, the needed financial resources can be made

available either by increasing the rents, fines local property rates or by enhancing grants-in-

aid. Increasing the tax revenue base at the disposal of local authorities had never been a

popular measure with elected council. Generally, the positions regarding the collection of

revenue had been unsatisfactory (Thavam.A.L:2013). The Auditor General, in his reports, had

repeatedly focused the attention of local authorities on the large amounts that have

accumulated as arrears of property rates. Most councils have failed to enforce the provisions

of the law for the recovery of outstanding property rates. It was felt that where the authority

was vested in the elected heads of local authorities, the enforcement of the provisions relating

to recovery tends to be ineffective. In order to improve the performance of revenue

administration, the chief paid officer of the council has to be given with the necessary authority

(Nanayakkara, 1989: 273).

There has been an understandable reluctance on the part of the local body to adopt

local power of taxation (Hanifa.S.L.M:2013). Peoples of the Akkaraipattu Municipal Council

have already heavily taxed through very comprehensive national taxation, and therefore, most

of the peoples of this area are facing hardship to pay taxes as a result of economic adjustments,

inflation, increased prize on goods and services and unemployment (Thavam.AL.2013). There

have also been practical and political problems with implementing new local taxes. In some

cases, proposal for local taxation did not conformed with the legislation- for example, by

proposing one tax on a particular tax object- and were accordingly disallowed. Most local

taxes, although relatively small, are highly visible and this makes them politically sensitive. With

the exception of the business tax, all local taxes are fixed in money terms, requiring politically

sensitive decisions to increase tax rates if revenues are to keep pace with inflation

(Hanifa.S.L.M:2013).

The potential of the property tax has been limited and not collected by the lack of data

on property valuations; as a result, municipal council is to face many problems such as poor

service delivery, depend on grants from central government and PC for survival. In addition,

the law allows some significant exemptions to local taxes which have seriously reduced the

base of local taxation (Valith M.AM.:2013). During the focus group discussion on local revenue

enhancement, it was identified that the AMC have a weak relationship between local revenue

collection and service delivery in the local government and participant recommended that the

local governments should adopt massive sensitization and mobilization of communities to

promote understanding as to why they are paying taxes and what taxes do. Thus there is need

to carry out a study with an attention of tracing the loopholes in revenue collections in relation

to service delivery in the AMC. Therefore, the local people should be satisfied on the

importance of paying taxes so that it will become easy to collect the revenues from them

without resistance.

There is a shortage of well trained and qualified personnel particularly in the areas of

tax assessment and property valuation which supposed to serve as tool for collection of taxes

and rates at the local level, even the few available are not properly trained in efficient

budgetary and financial management systems. Also, most of the local governments are short

staffed to carry out their duties. Local governments lack the capacity to attract and retain the

right caliber of staff to articulate plans and execute programs and projects in order to

transform the lives of the grassroots people in a short period, due to poor salary structure

(Rizan.I.L.M.:2013).

Local governments mobilize their funds solely from external sources. The external

sources include central and provincial governments financial transfers, like grants. These

external sources introduce a dependence syndrome in local government revenue mobilization

effort. Any setback from the external sources would have adverse effect on the administrative

machinery and execution of some viable projects. This also has weakened their internal

revenue mobilization capacity.

Another constraint is imposed on local government revenue mobilization capacity

through state control over local government act, which is made to pass through many levels of

approval in the hands of the state government, even after approval (Fowsar.A.M:2013).

Therefore, for effective functions of local governments, the revenue allocation formula should

be changed. Larger percentage of the revenue allocation should go to the local government in

order to enhance grass root development. The percentage should be allowed for the

development of the rural areas which would prevent the rural shift to urban center.

Local governments should strive towards improving internally generated revenue and

transparency and accountability in their management structure. This can be effectively carried

out through community participation in their various activities. Need to carry people along in

the execution of the projects would encourage administrative openness and accountability.

The dependence of the Municipal Councils on politician and parties in power for resource

allocation is widespread. Almost as general rule, pradeshiyasabhas in the periphery have

access only limited financial resources. Annual grants for salaries, members’ allowances and a

very limited amount of capital grants, mainly for roads, are the areas of support from the

central government which came through the provincial council. Local authorities are supposed

to generate income from their own sources, as permitted by the governing legislation, such as

Municipal Council Ordinance, Urban Council Ordinance and Pradeshiya Sabha Act. These

provide only a thin revenue base for local authorities, preventing them from performing even

their limited development mandate (Polity, 2011:42).

Since taxation or fee levying is a politically sensitive issue, some of the attempts to

increase revenue have become quite unpopular. Even the normal increase of rates that is done

once every five years is not a popular move. There have been instances of postponement of

such action, An issue that has been a bone of contention is the limitation in revenue earnings

by local authorities, , due to the take-over of certain services such as water supply, drainage

and electricity supply that could be undertaken easily by other government institutions. When

inquiries are made on this issue, government-owned organizations argued that the liabilities

of local authorities have been far greater than their capacities to perform. At the same time in

urbanized areas such as Colombo, the local authority is not in a position to perform its

legitimate role to serve the total population. This is best observed in case of low-income

settlements. Since land ownership or land rights are not established in case of slum/shanty

dwellers, they have not been considered as formal residents of the municipal council areas.

Hence services rendered to them are restricted or different. That has reduced the revenue

generation capacity of the municipal council. The delay in the passage of fines and stamps

duties for local governments from other governmental institutions poses a great problem in

the sense that budget sometimes more than 3 month or more invariably, this will cause delay

in execution of local government functions including payment of the staff salaries and hinder

infrastructural facilities to be put in place.

Among scholars and practitioners of local government in Sri Lanka, there is shared

agreement that an agenda for reform should be based on principle of institutional autonomy

of local government. Greater and not less autonomy is necessary condition for overcoming the

present crisis (Polity, 2011:45).

Findings on the sources of local revenue collection

Findings from the research study show that Akkaraipattu Municipal Council collects

local revenue from different sources and they include rates and taxes, services charges,

licenses fees, warrant fees, rents and other incomes in order to deliver services to the people.

Findings on the impacts of local revenue collection on service delivery

In Akkaraipattu Municipal Council, the issues and challenges in local revenue collection

has led to poor service delivery and the services delivery is limited to maintaining street lamps

and local roads, waste collection and maintaining of development projects like park,

playground and drainage system. Some of services mention in the annual report still not yet

meets by the peoples.

Findings on the limitations of local revenue collection in Akkaraipattu Municipal Council

There has been low local revenue collection in Akkaraipattu Municipal Council and this

has been due to the harshness of tax collectors and no interest of the peoples, high

administrative expenses corruption practiced by revenue officers, inadequate sources of

revenue, political intervention, for example tender defaulters who supported politicians during

campaigns are being protected by tax authorities, poor enforcement of rules and procedures

of collecting revenues, limited sources of revenue, tiny area of AMC, low incomes and wealth

which reduces the tax base thus leading to low local revenue collection and thus low service

delivery in Akkaraipattu Municipal Council .

Some remote councils in Sri Lanka also have high levels of fiscal capacity because of substantial

business income from various business, and industries but due to AMC has limited space and

rare of government land unable to establish big business center and industries in their area,

Recommendations

In light of the findings, it is identified that the AMC needs to make number of efforts to

ensure sufficient revenue to fulfill the needs of the people through quality service delivery.

Therefore, Akkaraipattu Municipal Council needs to simplify the licensing process and other

taxes in order to reduce noncompliance of businessmen to pay taxes. Therefore, license

registers should be computerized to reduce tax evasion and tax avoidance. Revenue collection

in Akkaraipattu Municipal Council should be improved by giving training to staff who involve in

collecting revenues on behalf of Akkaraipattu Municipal Council. Also an enforcement teams

should check businesses that have failed to pay taxes and penalize them accordingly. Further,

staffs that are responsible for revenue collection should enforce the law to who do not

following revenue laws and show negligence to pay the taxes.

It is important to sensitization, mobilization and publicity to the community about the

importance of paying taxes. This can be done through rallies, village meetings, newspapers,

radio programs, commissioning of projects and use of local revenues collected for activities

that have immediate and visible impact.

Further, Akkaraipattu Municipal Council should try to introduce other sources of local

revenue collection for example fines and fees imposed by local council courts, annual bicycle

license user charges, fees and property rates. Likewise, Fines, stamp duties should be collected

within the stipulated period from the respective institution to avoid delay. Further, AMC should

take steps introduce new taxes to increase own revenue. Funding ways to increase NGO

donations also will add more revenue to AMC.

Local government’s revenue generation in AMC needs restructuring so that taxing

powers be given to local authorities and also it should be allowed to revise major tax bases

with other levels of government to enable enough independent funds for development.

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