Case study: Revenue administration reform in Kampala – Enabling conditions

Similar reforms have been attempted by many local governments across the developing world, but often with limited success. So what made these so successful in Kampala? These areas of reform crucially depended on three key conditions for success:

A strong enabling political environment for reform

From the outset, implementing any reform will require sufficient political buy-in. The newly established structure of the KCCA provided this necessary enabling environment for reform. In particular:

  • Executive Director (ED) Jennifer Musisi brought with her a solid understanding of the importance of tax administration, how it could be improved, and its necessity for supporting revenue collection efforts in the city. This appreciation was needed in order to justify the substantial investments in improving administration.
  • The ED also appreciated the need for seeing the taxpayer as a client, and reforms were based on a motivating understanding of the taxpayer as a client who requires good services, and who is legitimate in demanding these in exchange for tax payment.
  • The decision to split the functions of revenue collection and expenditure, and create an independent Directorate of Revenue Collection (DRC) meant that the Directorate could concentrate solely on its mandate of revenue collection.

Adequate resources for cost-effective administrative reform

Substantial investments have been required in Kampala to raise administrative capacity, bring collection in-house, and invest in new systems. However, these up-front capital investments to increase collection have been largely recovered through higher revenues within one year (Kopanyi 2015).

At the same time, the DRC’s costs of operation increased from 1.1% in 2011 to 11.21% of collection by 2014 (Kopnayi 2015). Though this is an extremely large increase in costs and further reforms are still needed to reduce costs of collection, resultant improvements in revenue collection mean that the KCCA has now moved from a low cost but unsustainable revenue collection to a higher cost, sustainable system.

Realistic reforms: A focus on main revenue sources and incremental reforms

Key to the success of these reforms was the focus of the DRC on reforms to a short list of the largest revenue-generating sources for the city, as well as large taxpayers and large defaults. This was likely to make the most impact – with each new fee and tax, the overall system becomes more complex for the authorities to administer but also for the user to understand and comply with. This in itself can have adverse effects on revenue collection as it creates more avenues for potential corrupt practices and may contribute to a general decline in compliance. As a result, by 2014/15, the five largest local revenue sources accounted for over 80% of total revenues.

Incremental introduction of reforms such as digitisation of revenue systems played an important role in building administrative capacity from a low base and in addressing any problems with new reforms from the outset.