Tanzania Local Government Fiscal Challenges: Strategies for Sustainable Revenue Management
The government's budget for the 2023-2024 fiscal year stands at TZS 44.4 trillion, out of which local governments were expected to contribute TZS 4.66 trillion. However, the actual revenue collected falls significantly short of this target. The regional administration and local government budget amount to TZS 9.14 trillion, indicating that the revenue collected is less than half of the allocated budget. This suggests that there might be a need for increased efforts in revenue collection or reevaluation of budget allocations to ensure fiscal sustainability at the local level.
In the 2023/24 fiscal year, local government authorities in Tanzania managed to collect a total of TZS 592.9 billion from their own revenue sources, which accounted for 52.9 percent of their annual target. This achievement can be attributed to several factors. Firstly, there was an expansion of economic activities within the regions, leading to increased revenue generation. Additionally, the widespread adoption of point-of-sale devices facilitated easier and more efficient collection of revenue. Another contributing factor was the improvement in crop trading, driven by a bumper harvest in the 2022/23 season.
Among the regions, Dar es Salaam and the Lake zones emerged as the highest contributors to revenue collections, accounting for 21.6 percent and 20.7 percent respectively. This indicates that these regions have been successful in mobilizing resources locally, possibly due to their economic vibrancy and higher population densities.
According to this research, which depicts the local government revenue performance by zone, the actual revenue collected fell short of the target across various zones. This underscores the challenges faced in revenue mobilization despite the overall positive performance.
The analysis of budget estimates, revenue collection, and expenditures breakdown emphasizes the importance of effective fiscal management at the local government level to ensure financial sustainability and equitable service delivery across regions:
- Budget Estimates: The total government budget for the 2023-2024 fiscal year is TZS 44.4 trillion, out of which local governments were expected to contribute TZS 4.66 trillion.
- Actual Revenue Collection: However, the actual revenue collected by local government authorities amounted to TZS 592.9 billion, which is significantly lower than the estimated budget contribution. This suggests that local governments are facing challenges in meeting their revenue targets.
- Expenditures: The regional administration and local government budget amount to TZS 9.14 trillion, which is more than double the revenue collected. This indicates that local governments may be heavily reliant on central government transfers to finance their expenditures.
- Budget Shortfall: The difference between the estimated budget for local governments (TZS 4.66 trillion) and the actual revenue collected (TZS 592.9 billion) creates a substantial budget shortfall. This shortfall implies that local governments may face constraints in implementing their planned projects and services, potentially leading to service delivery challenges.
- Need for Fiscal Adjustment: The mismatch between revenue collection and budget allocation highlights the need for fiscal adjustments at the local level. This could involve enhancing revenue mobilization efforts, revising budget allocations, or exploring alternative sources of funding to bridge the gap between revenues and expenditures.
- Regional Disparities: The fact that certain regions, such as Dar es Salaam and the Lake zones, contribute significantly more to revenue collections than others underscore regional disparities in economic activity and revenue generation capacity. Addressing these disparities may require tailored strategies to support revenue mobilization in less economically vibrant regions.
Local governments can work towards fiscal adjustment, ensuring sustainable revenue generation, efficient resource allocation, and improved service delivery to citizens across regions:
Enhanced Revenue Mobilization:
- Improve tax administration: Strengthen efforts to enforce tax compliance, reduce tax evasion, and broaden the tax base.
- Diversify revenue sources: Explore alternative revenue streams such as property taxes, user fees for services, or local development levies.
- Invest in technology: Further expand the usage of point-of-sale devices and other digital platforms to streamline revenue collection processes and reduce leakages.
Budget Rationalization:
- Prioritize expenditures: Review budget allocations and prioritize essential services and projects based on local needs and development priorities.
- Reduce non-essential spending: Identify areas where expenditures can be trimmed without compromising service delivery or development goals.
- Implement performance-based budgeting: Link budget allocations to measurable outcomes and performance targets to ensure resources are used efficiently.
Capacity Building and Institutional Strengthening:
- Provide training: Invest in capacity building for local government officials involved in financial management, budgeting, and revenue collection.
- Strengthen oversight mechanisms: Improve internal controls, audit processes, and monitoring systems to enhance transparency and accountability in fiscal management.
Regional Development Strategies:
- Support economic growth: Develop targeted initiatives to stimulate economic activity and promote investment in regions with lower revenue generation capacity.
- Infrastructure development: Invest in infrastructure projects that can spur economic development and improve connectivity, thus contributing to increased revenue generation.
Fiscal Transfers and Grants:
- Ensure equitable distribution: Review the formula for fiscal transfers from the central government to ensure a fair allocation of resources based on the needs and revenue-raising capacity of each region.
- Targeted support: Provide additional grants or support to regions facing significant challenges in revenue mobilization, with a focus on capacity building and institutional strengthening.
Public-Private Partnerships (PPPs) and Innovation:
- Explore PPP opportunities: Collaborate with the private sector to develop revenue-generating projects and leverage private investment for infrastructure development and service delivery.
- Encourage innovation: Foster a culture of innovation and entrepreneurship within local governments to identify new revenue opportunities and improve efficiency in service delivery.