In many developing cities, municipal revenues are insufficient to finance the necessary investments in public infrastructure, services and well targeted policies that can deliver long term growth and rising living standards for a city. A key reason for this in many developing cities is poor revenue administration that limits own source revenues.

Key challenges include:

  • Poor database management. Data is often recorded manually and therefore subject to revisions, lacking the transparency and consistency across systems.
  • Limited success with revenue outsourcing. The impact of private collection of local government revenues has been mixed across cities. In some, revenues from tax collection increased and became more predictable, in others, outsourcing collection has been accompanied by high levels of corruption and large profit margins for private collectors at the cost of government revenues.1
  • Limited taxpayer compliance. This is partly due to limited awareness of tax liabilities, but also due to taxpayers’ negative perceptions of tax administration and the limited local investment in public services. For example, survey data from Tanzania suggests that the perceived lack of spending on public services is the main reason behind most citizens’ unwillingness to comply with taxation. 2

Reforms to tax administration involve measures to better identify taxpayers and expand the tax base, improve transparency in assessing tax liabilities, implement effective systems for billing and collection, and facilitate compliance. These reforms can be as important as tax policy to raise revenues and in most cases do not require changes to national legislation. One major success story in this area is the Kampala Capital City Authority (KCCA): by focusing on revenue administration reforms, it managed to increase its own source revenue by more than 100% between 2011 and 2015. 3

Reforms to improve revenue administration can increase finances for public investment as well as specifically enhance own source revenues for cities. Providing public services with locally generated revenues enhances the local government’s social contract with its citizens. This in turn helps build a culture of tax compliance as the price paid for a well-functioning local government.

Key messages

  1. Reforms to revenue administration can be as important as tax policy in improving municipal revenues.
  2. Key areas for reform are investments in staff and appropriate technologies, careful cost benefit analysis of outsourced revenue collection as well as treating the taxpayer as a client. These reforms in Kampala resulted in significant and sustainable increases in revenue generation.
  3. Effective reforms to revenue administration require significant, but recoupable, initial investments, strong political will at national and city levels, as well as realistic reforms focused on main revenue sources.

A write-up of Kampala’s successful experience transforming its revenue collection practices to drive municipal revenue growth can be found here.


  • 1 Odd-Helge Fjeldstad, Lucas Katera, and Erasto Ngalewa, “Outsourcing Revenue Collection: Experiences from Local Government Authorities in Tanzania” (Research on Poverty Alleviation, 2008); Mihaly Kopanyi, “Local Revenure Reform of Kampala Capital City Authority” (IGC, 2015).
  • 2 Odd-Helge Fjelstad et al., “Local Government Finances and Financial Management in Tanzania Observations from Six Councils, 2000-2003,” 2004.
  • 3 Kopanyi, “Local Revenue Reform of Kampala Capital City Authority.”