Panel Three: Local Financial Management and Revenue Development

The session opened with Jonathan Nzayikorera outlining the challenges and opportunities of financing infrastructure development and improving the tax revenue streams. There are a number of tax revenue streams – both actual and potential, which have been more or less maximised. These include property taxes, taxing the transfer of property, and looking into methods of valuing land (including agricultural land). Other low-hanging fruits include improving the tax administration systems: integrating these systems into modern IT frameworks, improving tax collecting capacity and local expertise.

Following the collection of these revenues, local government budgets in Rwanda are largely dependent on transfers from the central government. This is despite the efforts to decentralise revenue generation activities; the decentralisation process began in 2002, yet the central-to-local transition has not yet been completed. Empowering local governments, therefore, is a key priority. A second, related priority is ensuring accountability at all levels of revenue collection. This will have important knock-on benefits; for example, in improving public perceptions of the taxation process, and investing citizens with an interest in ensuring good governance and service delivery.

Mihaly Kopanyi followed this with a presentation on the various sources of finance, and their attendant challenges and benefits. With examples from around the world (Iran, Pakistan, China, India, Nepal, Hungary), Kopanyi noted that the first priority was to ensure a current budget surplus. A second priority was to limit subsidies, or – if using subsidies to address equity issues – to ensure that those subsidies are well-targeted and have an impact.

Various sources of finance were outlined. For example: the land market provides a variety of options, from developer’s fees to property transfer taxes. There is also the potential of using the capital market for long-term debt financing; however, this should be approached with caution, as inter-generational issues may become an issue (with latter generations saddled with imprudent debt). Donor or central government initiatives may provide a source of funding to local government initiatives. Furthermore, there are opportunities in using ring-fenced project financing: financing is obtained for a specific project which will be individually assessed on its viability.

Vincent Munyeshyaka, Permanent Secretary at the Ministry of Local Government, was the first discussant. Mr. Munyeshyaka noted the opportunities available in the capital and money markets for long-term debt financing. For example, the Rwanda Stock Exchange was opened in 2008, and the country is currently examining the possibility of issuing a municipal bond.

The second discussant, Richard Dada of the Rwanda Revenue Authority (RRA), outlined the ways in which the RRA is supporting local government revenue mobilisation. This addresses a variety of challenges which continue to be experienced by Rwanda: a narrow tax base; lack of tax database and other IT systems; lack of awareness by small taxpayers in terms of who pays what; and, finally, the high costs of tax collection.