KWAME NKRUMAH UNIVERSITY OF SCIENCE AND

TECHNOLOGY, KUMASI

COLLEGE OF ART AND SOCIAL SCIENCES
KNUST SCHOOL OF BUSINESS





Challenges and prospects of fiscal decentralization in Ghana:
A case study of the Wa Municipality





BY
BA-INGE MATHIAS
IB-KU ROLAND
KARIMU NASHIRU
SEIDU ABDUL-KUDUS
MAY, 2012
i

KWAME NKRUMAH UNIVERSITY OF SCIENCE AND
TECHNOLOGY, KUMASI

COLLEGE OF ART AND SOCIAL SCIENCES
KNUST SCHOOL OF BUSINESS




Challenges and prospects of fiscal decentralization in Ghana:
A case study of the WA Municipality




A Dissertation
Presented to the KNUST School of Business in Partial Fulfillment of the
Requirements for the award of BSc. Business Administration degree

TITLE PAGE
BY
BA-INGE MATHIAS
IB-KU ROLAND
KARIMU NASHIRU
SEIDU ABDUL-KUDUS
MAY, 2012
ii

DECLARATION
We declare that this long essay is our original work and has not been presented, either
whole or in part, for any purpose anywhere. To the best of our ability, we have duly
acknowledged information from other sources.

NAME INDEX NUMBER SIGNATURE DATE
BA-INGE MATHIAS 2502808 ................
IB-KU ROLAND 2505108 ................
KARIMU NASHIRU 2505408 ................
SEIDU ABDUL-KUDUS 2510008 ................

SUPERVISED BY:
MR. KWAME MIREKU .. ................
SIGNATURE DATE
CERTIFIED BY:
MR. J. M. FRIMPONG .. ................
SIGNATURE DATE







iii

DEDICATION
We dedicate this work to our beloved parents; Mr. Joseph Ba-inge and his wife Mrs.
Georgina Ba-inge, Mr. Haruna Seidu and his wife Seidu Asana, Mr. Maalu Albanus
and his wife Dery Basilia, Mr. Wadjia Karimu and his wife Adamu Safia with whose
support and encouragement this work has come to reality.




















iv

ACKNOWLEDGMENT
All praises and thanks are due to God, the most gracious and the most merciful, who
has given us knowledge, protection and guidance throughout our education.

Our profound gratitude goes to Mr. Kwame Mireku, a lecturer in the KNUST School
of Business, who supervised this work and whose guidance has made this study a
success. To all lecturers of the KNUST School of Business, we thank them for
making our university education a reality.


Also, our sincere thanks go to the staff of the Wa Municipal Assembly especially
Hon. Duogu Yakubu, the Municipal Chief Executive and Mr. Dabuo Julius, the
Municipal budget officer who contributed in diverse ways in assisting us to get data
for this project. We say may God bless them.











v

ABSTRACT
The need for growth and development at the grass-root level has necessitated the concept
of local government and decentralization in Ghana. Under the Local Government Act,
1993, (Act 462), District Assemblies are responsible for the development and the general
needs of the local communities. This has resulted in high expectations towards
development from the local communities. Whiles significant progress has been made
towards the other facets of decentralization; fiscal decentralization seems not to be
progressing. The resources provided by central government to the district assemblies are
not always sufficient to meet the developmental expectations of the people hence, the
need for district assemblies to mobilize revenue from internal sources to supplement the
transfers from the central government. It is however not uncommon to see district
assemblies generating revenue below their revenue needs and targets.
The study covers all the eight towns in the Wa Municipality. Out of this population, a
sample of one hundred and fifty (150) was selected. Quotas of one hundred and twelve
(112), twenty (20) and eighteen (18) were assigned to the general public, revenue
collectors and the assemblys staff respectively. Purposive sampling was used for the
assemblys staff, whiles convenience sampling was used for both the general public and
the revenue collectors.
The study identifies several challenges to fiscal decentralization and remedies for
overcoming them. For the fiscal decentralization policy to achieve its intended objectives
the central government and MMDAs in Ghana need to adopt measures such as: an
adequate enabling environment, assignment of an appropriate set of functions to local
governments, assignment of an appropriate set of local own-source revenues to local
governments and the establishment of an adequate intergovernmental fiscal transfer
system.

vi

TABLE OF CONTENTS

TITLE PAGE .................................................................................................................. i
DECLARATION ........................................................................................................... ii
DEDICATION ............................................................................................................. iii
ACKNOWLEDGMENT............................................................................................... iv
ABSTRACT ................................................................................................................... v
TABLE OF CONTENTS .............................................................................................. vi
LIST OF TABLES ....................................................................................................... xii
LIST OF FIGURES ..................................................................................................... xii
LIST OF ABBREVIATIONS AND ACRONYMS .................................................. xiii
CHAPTER ONE ............................................................................................................ 1
INTRODUCTION ......................................................................................................... 1
1.1 Background of the study .......................................................................................... 1
1.2 Problem Statement ................................................................................................... 3
1.3 Research Objectives ................................................................................................. 5
1.4 Research Questions .................................................................................................. 5
1.5 Significance of the study .......................................................................................... 5
1.6 Scope and limitations of the study ........................................................................... 6
1.7 Organization of the study ......................................................................................... 6
CHAPTER TWO ........................................................................................................... 8
LITERATURE REVIEW .............................................................................................. 8
vii

2.1 Introduction .............................................................................................................. 8
2.2 Definition of key concepts ....................................................................................... 9
2.3 Overview of Fiscal Decentralization in Ghana ...................................................... 10
2.4 Objectives and implications of fiscal decentralization in developing countries .... 12
2.5 Arguments for fiscal decentralization .................................................................... 12
2.6 Extent of decentralization of fiscal powers ............................................................ 14
2.7 Effectiveness of fiscal decentralization ................................................................. 16
2.8 Challenges of fiscal decentralization in developing countries ............................... 17
2.8.1 Intergovernmental transfers ................................................................................ 18
2.8.2 Expenditure management and financing ............................................................. 18
2.8.3 Adequacy of local revenues and autonomy ........................................................ 19
2.8.4 Local government borrowing .............................................................................. 19
2.8.5 Budget discretion ................................................................................................ 20
2.9 Prospects of Fiscal Decentralization ...................................................................... 22
2.9.1 An Agenda for Reforming Expenditure Assignment and Management ............. 23
2.9.2 An Agenda for Improving Local Revenue Generation and Autonomy .............. 24
2.9.3 An Agenda for Reforming Intergovernmental Transfers .................................... 24
2.9.4 Local Government Borrowing and Investment Finance ..................................... 25
2.9.5 Better Framing of Institutional Reform .............................................................. 26
2.10 History of decentralization in Ghana ................................................................... 26
CHAPTER THREE ..................................................................................................... 28
viii

METHODOLOGY ...................................................................................................... 28
3.1 Introduction ............................................................................................................ 28
3.2 Research methods .................................................................................................. 28
3.3 Data sources ........................................................................................................... 28
3.3.1 Primary sources of data ....................................................................................... 28
3.3.2 Secondary sources of data ................................................................................... 29
3.4 Sample Population and Sample Size...................................................................... 29
3.5 Sampling techniques .............................................................................................. 29
3.6 Data Collection Instruments .................................................................................. 30
3.6.1 Interview ............................................................................................................. 30
3.6.2 Questionnaires..................................................................................................... 31
3.7 Data Analysis Tools ............................................................................................... 31
3.8 Profile of the Wa Municipal Assembly ................................................................. 32
CHAPTER FOUR ........................................................................................................ 36
DATA PRESENTATION AND ANALYSIS ............................................................. 36
4.1 INTRODUCTION ................................................................................................. 36
4.2 THE EXTENT OF DECENTRALIZATION OF FISCAL POWERS .................. 36
4.2.2 Power to generate and use revenue ..................................................................... 37
4.2.3 Power to prepare and approve budgets ............................................................... 38
4.2.4 Restrictions on the use of the DACF .................................................................. 38
4.3 EFFECTIVENESS OF FISCAL DECENTRALIZATION ................................... 40
ix

4.3.2 Ability to meet budget plans ............................................................................... 41
4.3.3 Revenue collectors education level ..................................................................... 43
4.4 THE CHALLENGES OF FISCAL DECENTRALIZATION ............................... 43
4.4.1 Challenges in acquiring loans ............................................................................. 43
4.4.2 Challenges in preparing budgets ......................................................................... 45
4.4.3 Challenges in mobilizing revenue ....................................................................... 46
4.4.4 Challenges taxpayers usually face ...................................................................... 47
4.4.5 Challenges revenue collectors usually encounter ............................................... 49
4.5 REMEDIES TO THE CHALLENGES OF FISCAL DECENTRALIZATION ... 50
4.5.1 Measures to overcome challenges in borrowing funds ....................................... 50
4.5.2 Measures to overcome challenges in mobilizing revenue .................................. 52
4.5.3 Measures to overcome challenges revenue collectors face ................................. 53
4.5.4 Measures to overcome challenges in preparing budgets ..................................... 54
4.5.5 Measures to overcome challenges taxpayers face .............................................. 55
4.6 PROSPECTS OF FISCAL DECENTRALIZATION ............................................ 57
4.6.1 An adequate enabling environment .................................................................... 57
4.6.2 Assignment of an appropriate set of functions to local governments ................. 58
4.6.3 Assignment of an appropriate set of local own-source revenues to local
governments ................................................................................................................. 58
4.6.4 The establishment of an adequate intergovernmental fiscal transfer system ...... 58
4.6.5 The establishment of adequate access of local governments to development
capital ........................................................................................................................... 59
x

CHAPTER FIVE ......................................................................................................... 60
SUMMARY OF FINDINGS, RECOMMENDATIONS AND CONCLUSION ........ 60
5.1 INTRODUCTION ................................................................................................. 60
5.2 SUMMARY OFFINDINGS .................................................................................. 60
5.2.1 The extent of decentralization of fiscal powers .................................................. 60
5.2.2 Effectiveness of fiscal decentralization .............................................................. 61
5.2.3 The challenges of fiscal decentralization ............................................................ 61
5.2.4 Remedies to the challenges of fiscal decentralization ........................................ 62
5.2.5 Prospects of fiscal decentralization ..................................................................... 64
5.3. Recommendations ................................................................................................. 65
5.4 Recommendation for further research ................................................................... 66
5.5 Conclusion ............................................................................................................. 66
REFERENCES ............................................................................................................ 68
APPENDIX .................................................................................................................. 72









xi

LIST OF TABLES
Table 4.2.1 The assemblys power to borrow and its restrictions .............................. 36
Table 4.2.2 Assemblys power to prepare and approve its budgets ............................. 38
Table 4.3.1 Budgeted and actual revenue for 2009 and 2010 ..................................... 40
Table 4.3.2 Level of education of revenue collectors .................................................. 43
Table 4.4.1 Challenges The Assembly Faces In Mobilizing Revenue ........................ 46
Table 4.4.2 challenges faced by tax payers in paying taxes ........................................ 48
Table 4.5.1 Measures to overcome assemblys challenges in borrowing funds .......... 50
Table 4.5.2 Measures to overcome the challenges revenue collectors face................ 53
Table 4.5.3 Measures to overcome the challenges the assembly encounter in preparing
its budgets .................................................................................................................... 55
Table 4.5.4 Measures to overcome challenges faced by taxpayers in paying taxes .... 56











xii

LIST OF FIGURES
Figure 4.2.1 Apart from borrowing, does the assembly have power to generate and
use its own revenue? .............................................................................. 37
Figure 4.2.2 Restriction placed on the use of the DACF ........................................... 39
Figure 4.3.1 Does the assembly always meet its budget plans? ................................ 41
Figure 4.4.1 Challenges the assembly encounters in acquiring loans ....................... 43
Figure 4.4.2 Challenges the assembly face in preparing its budgets ......................... 45
Figure 4.4.3 Challenges faced by revenue collectors in collecting revenue .............. 49
Figure 4.5.1 Measures to be put in place to ensure effective revenue generation ..... 52















xiii

LIST OF ABBREVIATIONS AND ACRONYMS
BoG Bank of Ghana
CPP Convention Peoples Party
DACF District Assemblies Common Fund
DAs District Assemblies
DDF District Development Facility
DPs Development Partners
FAD Financial Administration Decree
GTV Ghanas Television
IRS Internal Revenue Service
L.I Legislative Instrument
MCE Municipal Chief Executive
MMDAs Metropolitan, Municipal and District Assemblies
MTDPs Medium-Term Development Plans
PNDC Provisional National Defense Council
PNDCL Provisional National Defense Council Legislation
SMCD Supreme Military Council Decree
SNGs Sub-National Governments (SNGs)
SPSS Statistical Package for Social Sciences
T-Z TuoZaafi
USAID United States Agency for International Development
1

CHAPTER ONE
INTRODUCTION
1.1 Background of the study
The decentralization of authority and responsibility for public services provision to
local government is an essential part of the overall governance and development
strategy in many developed and developing countries around the world. Some
countries, organizations and institutions have recognized the need for decentralization
as a tool to enhance the effectiveness and efficiency of their operations. Development
partners, district assembly functionaries, donors, academia and the local communities
have stressed the need for decentralization. This will increase economic efficiency
and allow greater differentiation in the provision of public services due to improved
preference matching and government accountability (Bardhan and Mookherjee 2006;
Lockwood 2006). This thus reflects the belief that because local governments are
closer to the people than the central government, they will be better informed about
the preferences and circumstances of the residents; therefore, decentralization can
improve allocation efficiency in the sense that the services provided by local
governments will be better matched with the preferences of their populace; and local
people might be better informed about the actions of local government; therefore, they
will be in a better position to hold their government more accountable.

The idea of decentralization in Ghana started during the colonial era. The colonial
masters (the British) adopted indirect rule to govern the Gold Coast colony through
local authorities. These local councils or authorities were responsible for the
oversight of public health, peace and order and the imposition of taxes and levies for
development at the grass root or local level.
2

Since independence, succeeding governments in Ghana have regarded
decentralization as a necessary condition not only for socio-economic development,
but also to achieve political objectives such as legitimacy and (paradoxically)
recentralization of power (Ayee 1994; 2004; 2008a). This is evidenced by over ten
(10) commissions and committees of enquiry established to look at decentralization
reforms. The introduction of the assembly system of local government in 1988 with
the passage of the Local Government Law, PNDCL 207 and its successor Local
Government Act, 1993 (Act 462) brought into being local authorities known as
Metropolitan, Municipal and District Assemblies (MMDAs) with legislating,
executing, budgeting, planning and rating powers.

In trying to carry out their duties, MMDAs encounter certain problems and challenges
including little fiscal autonomy and greater control by central government among
others. The then Upper West Regional Minister, Alhaji Isahaku Salia in his speech at
the launch of a four day public hearing of composite budgets for the various
Municipal and district assemblies in the Region, targeting coordinating directors,
planning officers and municipal and district finance officers which was published
on14
th
October, 2011, observed that though Ghanas decentralization programme
started in 1988, its fiscal component, which is a prime facilitator of the entire
decentralization policy, has been rather slow in changing. He said fiscal
decentralization involves a level of resource allocation to local government which
would allow it to perform decentralized functions, that is why according to him: The
composite budget approach has been adopted to facilitate the transfer of resources to
the metropolitan, municipal and district assemblies.Dr. Esther Ofei Aboagye, the
director of the institute for local government studies in her words at the Brong Ahafo
regional consultative forum for decentralization, indicated that several improvements
3

have been made in almost all areas of decentralization except fiscal decentralization.
This was resounded by the GTVs regional diary on December 12, 2009. Ahwoi
(2000) and Nuama (2003) noted this earlier in their works. The decentralization
programme of Ghana has been anchored on four main inter-related pillars including:
Political Decentralization, Administrative Decentralization, Decentralized Planning
and Fiscal Decentralization. A widely cited World Bank report states that an effective
public sector in a modern developing country depends on the ability of the central
government to harness the resources of lower levels of government (Cochrane, 1983).
The over-reliance of local governments on central government transfers, which are
usually not predictable in terms of timing and magnitude, raises issues of concern.
Central government, development partners, district assembly functionaries, and the
local communities have become increasingly disturbed by the current state of fiscal
decentralization in Ghana. Whilst Ghana has made tremendous progresses towards
political, administrative and decentralized planning, a lot of problems and challenges
still need to be addressed especially in the area of fiscal decentralization. Fiscal
decentralization is defined as the ceding of expenditure and revenue mobilization
functions by the central government to MMDAs. Decisions about revenue generation
and expenditure are transferred from the central government to the local level. The
local units prepare tax collection models (Ahwoi 2009). This study thus, seeks to
examine the prospects and challenges of fiscal decentralization in Ghana using the Wa
Municipality as a case study.

1.2 Problem Statement
Fiscal decentralization is seen all over the world as an effective tool for good
governance and development. Since independence, succeeding governments in Ghana
have tried to exploit this tool by advancing the fiscal decentralization programme. The
4

introduction of the local government structure was therefore to transfer authority and
power to the MMDAs to enhance effective and efficient governance.

It is however interesting to note that most MMDAs in Ghana are unable to meet their
revenue generation targets because of central governments restrictions and other
internal factors. This problem is more serious among the municipal and district
assemblies of which Wa Municipality is no exception. The Municipalitys inability to
generate enough funds from its internal sources makes it depend more on external
sources like the District Assemblies Common Fund (DACF) and donations for
development. The main problem with this issue is that, as the needs of the populace
are on the increase, the resources needed to fulfill these needs are not sufficient. As a
result the Municipality mostly depends on central government for funds to carry out
its developmental projects. However, the amount and timing of these inflows from the
central government is unpredictable and this retards the rate of development in the
Municipality. Though Ghanas decentralization program started in 1988, its fiscal
component, which is a prime facilitator of the entire decentralization policy, has been
rather slow in changing. This is because MMDAs in Ghana are not completely
fiscally independent from the central government and their financing do not
commensurate with their responsibilities. The revenue raising powers given to
MMDAs are inadequate and as a result, local authorities depend mostly on central
government for funds to carry out their developmental projects and also the
responsibility for budgets preparation, administration and control of budgetary
allocations to the various departments is impeded hence the need for this research.

5

1.3 Research Objectives
The general objective of this research is to examine the challenges and prospects of
fiscal decentralization in Ghana. From the general objective, the following specific
objectives have been formed:
1. To find out the extent to which fiscal powers have been decentralized in the Wa
Municipality.
2. To assess the effectiveness of fiscal decentralization in the Wa Municipality.
3. To examine the challenges of fiscal decentralization within the Wa
Municipality.
4. To examine the prospects of fiscal decentralization in Ghana.

1.4 Research Questions
1. What is the extent of decentralization of fiscal powers in the Wa Municipality?
2. How effective is fiscal decentralization in the Wa Municipality?
3. What are the challenges of fiscal decentralization within the Wa Municipality?
4. What are the prospects of fiscal decentralization in Ghana?

1.5 Significance of the study
The study is aimed at bringing to bare the challenges and prospects of fiscal
decentralization. This stems from the fact that little attention has been given to fiscal
decentralization as compared to all the other forms of decentralization. This study
seeks to identify the challenges of fiscal decentralization in the Wa Municipality and
ways of overcoming them. The study also seeks to bring on board development
partners and central government to undertake an effective economic planning in
promoting adequate development. It will also enable them to perform effectively
despite changing international economic conditions and structural adjustment
6

programmes designed to improve public sector performance which have created
serious fiscal difficulties for developing countries of which Ghana is no exception.
Also, the study will emphasize the need for fiscal autonomy in Ghana (the transfer of
fiscal powers from central government to MMDAs). This study also seeks to provide
some of the measures that can be put in place in order to ensure effective fiscal
decentralization in Ghana.

1.6 Scope and limitations of the study
The study area includes the Wa regional administration, the area councils of the
municipality, the eight main markets and selected communities within the
municipality.

As a result of the scattered nature of the geographical area, the study was limited by
the inability to cover all towns and villages. The study was as well limited by the
unwillingness of some citizens to provide information on their activities as it hammers
on revenue and tax activities. Coupled with this was the difficulty in administering of
the questionnaires due to inability of some citizens to respond to the questionnaires
especially the traders, businessmen and women owing to the busy nature of their
activities.

1.7 Organization of the study
The study is organized into five chapters which are summarized as follows: Chapter
one is made up of the background of the study, problem statement, research
objectives, research questions, significance of the study, scope and limitations of the
study and the organization of the study. Chapter two highlights on the literature
review related to the topic of the research. This covers the introduction, the definition
of key terms, history of fiscal decentralization in Ghana, overview of fiscal
7

decentralization in Ghana, Prospects of Fiscal Decentralization, Objectives and
implications of fiscal decentralization in developing countries, arguments for fiscal
decentralization, and challenges of fiscal decentralization. Chapter three deals with
the method of the research which covers the sources of data, the population and
sample of the study, methods of data collection and analysis, and the background to
the study. Chapter four is concerned with data analysis to achieve the objectives of the
study. It covers the analysis of secondary data, the primary data and the qualitative
analysis. Chapter five encompasses the summary of the findings of the research,
recommendations and finally, conclusion.



8

CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction
This chapter deals with a review of information with regard to the topic of study. It
brings to bare already existing knowledge that has been published by other writers
and researchers on fiscal decentralization. It also provides a general overview of
decentralization and the challenges and prospects of fiscal decentralization.

Public service delivery by sub-national governments (SNGs) in many African
countries is tightly linked to subventions from central government. Inflexible transfer
systems that are rarely well defined often constrain the ability of local governments to
plan and to efficiently deliver basic public services, especially education and health.
Meanwhile, on-going political reforms on the continent will inevitably involve more
decentralization, where local governments are assigned greater responsibilities of
delivering key development projects and public services. This process should include
legal and administrative reforms that facilitate planning at the local government level,
in terms of identification of opportunities and mobilization of local as well as external
resources, including private savings, to meet the development goals of the local
community (Adam, 2007).

Prof J E A Mills the then vice president of the Republic of Ghana in his opening
address on the forum; a decade of decentralization in Ghana retrospect and
prospects in 2000, states; Global trends in governance present many challenges for
governments and the governed alike. The demands of the governed are clearly for
satisfaction of their basic needs and rights and responsibilities for participation and
self-realization. Those who govern, on the other hand are constrained by what is
9

possible within the limitations of available resources and competing demands of
interest groups. The best way to reconcile these two viewpoints is to make the people
part of the decision making process through decentralization.

2.2 Definition of key concepts
According to Rondinelli (1983), decentralization is defined as the transfer or
delegation of legal and political authority to plan, make decisions and manage public
functions, from the central government and its agencies to field organizations of those
agencies.

Ayee (2003) stated that, decentralization is the transfer of responsibility (authority)
and resources (human and financial) and accountability from central government to
local self- governing entity. This involves long process of political, fiscal and
administrative decentralization. When only responsibility or authority is transferred
but not resources-there is de-concentration. When responsibility and resources are
transferred, there is delegation. When there is transfer of responsibility, resources and
accountability (partially or completely) there is devolution or democratic
decentralization. According to Ayee, (1992) decentralization can be seen in the
following perspectives;
a. Devolution: the legal conferment of powers upon formally constituted local
authorities to discharge specific or residual functions. Authority for making
decisions on certain issues is vested in sub-regional units of government and
central government.
b. De-concentration: a minimal transfer of power that is needed for decision
making on the spot although some latitude is given for routine decision
making. Field staff remained employees of the center and the center sets broad
10

guidelines within which the field is administered. Other names for de-
concentration are administrative decentralization, field decentralization and
bureaucratic decentralization.
c. Privatization: the transfer of activities formally performed by state agencies
to private sector thereby reducing the role of government. Privatization also
involves the market provision of goods and services.
Atakora, (2006) defined decentralization as the transfer of power and authority from
the central government to sub-units either by political, administrative, economic and
fiscal means.

Fiscal decentralization is defined as the ceding of expenditure and revenue
mobilization functions by the central government to MMDAs. Decisions about
revenue generation and expenditure are transferred from the central government to the
local level. The local units prepare tax collection models, Ahwoi (2009).

According to Ahmed et al (2005: 6), fiscal decentralization has four major
components:
(1) Allocation of expenditure responsibilities by central and local governments;
(2) Assignment of taxes by government tiers;
(3) The design of an intergovernmental grant system; and
(4) The budgeting and monitoring of fiscal flows between different government tiers.

2.3 Overview of Fiscal Decentralization in Ghana
Fiscal decentralization entails entrusting local government units with the authority and
capacity to generate, allocate and utilize financial resources to promote socio-
economic development. According to Kokor and Kroes (2000), the objectives of
Ghanas decentralization programme are to increase local revenue mobilization,
11

restructure allocation of resources to meet local needs and empower MMDAs to make
allocation decisions at the local level over both locally generated funds and those
transferred from the central government.

In furtherance of these objectives, the District Assemblies Common Fund was
established and has been in operation for over a decade. The allocations to each
MMDA are based on a formula approved by Parliament. Disbursements are made on
a quarterly basis and a quarter in arrears. The DACF is available to MMDAs only for
investment expenditure. In 2008, the proportion of total government revenue allocated
to the DACF was reviewed from 5% to 7.5 %. All MMDAs can only receive their
allocations upon the submission of their Annual Action Plans and Annual Budgets to
the Administrator of the DACF. MMDAs have also been mandated under section 245
of the 1992 Constitution and Act 462 to collect fees, fines, rates, tolls and licenses in
order to support socio-economic development in their areas. Further to this, several
legal instruments have been enacted to ensure transparency and accountability in the
use of financial resources at the local level. These include:
Financial Administration Act, 2003 (Act 654, amendment to FAD, 1979,
SMCD 221)
Financial Administration Regulations, 2004 (L.I. 1802, revoking the Financial
Administration Regulations, 1979, L.I. 1234)
Public Procurement Act, 2003 (Act 663)
Ghana Audit Service Act, 2000, (Act 658)
Internal Audit Agency Act, 2004 (Act 656),



12

2.4 Objectives and implications of fiscal decentralization in developing countries
Literature indicates that only a few developing countries have adopted comprehensive
political, fiscal and administrative decentralization. Fiscal decentralization has four
major components:
i. Allocation of expenditure responsibilities by central and local governments;
ii. Assignment of taxes by government tiers;
iii. The design of an intergovernmental grant system; and
iv. The budgeting and monitoring of fiscal flows between different governments
tiers (Ahmed et al 2005: 6).
It should be noted that lack of meaningful political and administrative decentralization
often renders fiscal decentralization ineffective and hence complicates the analysis
(Guimaraes 1997). Instead of genuine political decentralization, central governments
in many countries appoint officials of sub-national governments, replacing
administrative decentralization with administrative deconcentration (where decision
making is shifted to regional or local officials of the central government) or
administrative delegation (where local governments undertake activities on behalf of
central government).The inability of central government to meet increasing demand
for local services underpins moves towards decentralization in developing countries.
Decentralization of fiscal responsibilities is envisaged to increase efficiency in service
delivery and reduce information and transaction costs associated with the provision of
public services (De Mello 2000b).

2.5 Arguments for fiscal decentralization
Accordingly, De Mello (2000b: 365) summarizes the arguments for fiscal
decentralization as follows:
13

i. Fiscal decentralization enables sub-national governments to take account of
local differences in culture, environment, endowment of natural resources,
and economic and social institutions.
ii. Information on local preferences and needs can be extracted more cheaply
and accurately by local governments, which are closer to the people hence
more identified with local causes.
iii. Bringing expenditure assignments closer to revenue sources can enhance
accountability and transparency in government actions.
iv. Fiscal decentralization can help promote streamlining public sector activities
and the development of local democratic traditions.
v. By promoting allocation efficiency, fiscal decentralization can influence
macro-economic governance, promote local growth and poverty alleviation
directly as well as through spillovers.

Smoke (2001) also identifies three main reasons for the relevance of fiscal
decentralization in developing countries. These are:
i. The failure of economic planning by central governments in promoting
adequate development.
ii. Changing international economic conditions and structural adjustment
programmes designed to improve public sector performance which have
created serious fiscal difficulties for developing countries.
iii. Encouragement of the development of financial autonomy in developing
countries by changing of political climates. Thus, fiscal decentralization can
be considered relevant for effective governance, macroeconomic stability and
growth.

14

2.6 Extent of decentralization of fiscal powers
A particularly significant means of restricting local government autonomy is through
central government control of the purse strings. To what degree is local government
fiscally independent? To what extent is local government financing commensurate
with its responsibilities? How dependent are district authorities on central government
for their financing? How adequate are their own revenue raising powers?

District authorities have three sources of revenue: the District Assemblies Common
Fund, ceded revenue, and their own revenue-raising powers through local taxation.
The DACF is the main source, providing a constitutionally guaranteed minimum
share of government revenue, and thus some financial independence. Yet evidence of
its workings is somewhat mixed. On the one hand, annual monies distributed by the
DACF have increased quite significantly from 38.5 billion cedis in 1994 to 165 billion
cedis in 1999 in actual amounts, that is without taking inflation into account
(Nkrumah 2000: 63). On the other hand, it is disputed whether district authorities
have received the full five per cent, with annual allocations based on projections of
annual revenue, and invariably underestimated. A report for USAID states that DACF
disbursements have averaged about 4.3 per cent of actual annual revenue, though no
source is cited (USAID 2003: 15).A further argument is that the five per cent
minimum of national revenue is insufficient, given the broad range of responsibilities
devolved to district authorities. A second source of finance is ceded revenue. This is
revenue from a number of lesser tax fields that central government has ceded to the
DAs. Ceded revenue is still collected by the Ghanaian Internal Revenue Service
(IRS), but then transferred to DAs via the Ministry of Local Government and Rural
Development. Again, there is mixed evidence of its workings. Nkrumah (2000: 62)
suggests that ceded revenue has contributed quite substantial sums to local
15

governments, yet Ayee (2000: 32) cites evidence from his three case-study districts
that none had actually received such disbursements from central government. Local
authorities are not completely dependent on central government and do themselves
have some revenue-raising powers. Such local taxation is limited, however, with
Nkrumah (2000: 61) commenting that the lucrative tax fields (for example, income
tax, sales tax, import and export duties) all belong to the center, while local
government has access only to low yielding taxes such as basic rates and market
tolls.

Given the extensive responsibilities decentralized to district authorities, outlined
above, it is generally recognized that their financial position is weak. Local
government has little fiscal independence, remaining overwhelmingly dependent on
central government for its financial resources, with limited revenue raising ability.
Oyugi (2000: 12-3) suggests that the dependence of local authorities on central
government funding leads to a loss of operational autonomy, with local initiatives
undermined. The establishment of the DACF is certainly an advance in this respect,
providing a constitutionally guaranteed minimum, though the figure of five per cent
would seem inadequate. Yet we are also reminded that central government directives
determine 75 per cent of expenditure. Greater autonomy still would stem from the
ceding of greater revenue-raising powers, but the likelihood of such fiscal reforms is
slim. Overall, it appears that central government has been more willing to share its
responsibilities with local government than to share its revenue. The consequence of a
fiscal crisis for local government, perhaps generated by central government, would be
an inability to deliver public services in line with new responsibilities, in turn
undermining the DAs legitimacy in the eyes of the local electorate. Any notion of
popular control is undermined by the truism that he who pays the piper, call the
16

tune, with DAs responding less to local taxpayers and more to the requirements of
central government.
Despite the constitutional provisions that implied an autonomous and lead role for
local government in initiating and coordinating local development policies (Article
240[2][b]), the evidence of the degree of central government control and the lack of
local government autonomy undermines any notion of domains of discretionary
power. It is further weakened by the discussion of powers and functions, noting the
extensive range of 86 functions decentralized to local government, yet the non-
existent or limited discretionary power in the majority of those areas. Full power and
responsibility only resides with district authorities for the minority of devolved public
services, estimated at 25 per cent of DACF expenditure. Where public services are
deconcentrated or delegated, DAs merely act as agencies for the central state or have
tasks delegated to them by central government ministries, with little or no
discretionary powers. There is little to suggest that DAs have become the principle
authority, providing direction and supervision to all other authorities in the district,
including central government departments and agencies, as outlined in constitutional
and legislative provisions. On the contrary, central government appears to remain
dominant at district level, in terms of top-down policy direction and guidance from
the Ministry of Local Government and Rural Development, the National
Development Planning Commission and the Ministry of Finance, and in terms of
policy implementation by central government agencies.

2.7 Effectiveness of fiscal decentralization
Significant progress has been made towards achieving fiscal and macro-economic
stabilization since the transition in most countries progress which has importantly
changed the environment in which the decentralization process is taking place. There
17

has, however, been substantial variation in the nature and pace of reforms across
countries. In general, the Eastern European and Baltic countries, the most advanced
reformers, have made rapid progress. The intermediate reformers the South-Eastern
European countries of Albania, Bulgaria, and the slow reformers Armenia,
Azerbaijan, Belarus, Georgia, Tajikistan, Turkmenistan, Uzbekistan have been less
successful in establishing fiscal institutions, controlling fiscal imbalances, and
redefining the role of the state ( EBRD, 1998; Valdivieso, 1998).

2.8 Challenges of fiscal decentralization in developing countries
It has to be acknowledged that some modest gains have been achieved since the
process of fiscal decentralization was set in motion in Ghana. According to Kunfaa
(2002), despite the many negative stories about misappropriation of funds in
MMDAs, a significant number of development projects have been carried out on the
initiative of almost every MMDA throughout the country, which would not have been
the case if development was initiated from only the central government. A number of
bottlenecks towards fully institutionalizing fiscal decentralization in Ghana however
still remain. These include the following:
Substantial authority has been given to MMDAs without accompanying
resources to fulfill the mandates;
Composite budget system has not been fully operationalized;
MDAs continue to prepare budget estimates and account for expenditure on
sectoral basis at the district and regional levels;
Limited discretionary authority of MMDAs over funds from DACF;
Weak local revenue generation and mobilization capacity of MMDAs
Untimely disbursement of funds from DACF; and
18

Substantial deduction in the quarterly DACF allocation to the MMDAs to
finance national level programme, for example National Youth Employment
Programme, Fumigation among others.
Variances in the amounts allocated, disbursed and actually received by
MMDAs from the DACF. The variations were as a result of the fact that
certain expenditures were incurred on behalf of MMDAs and the cost
deducted at source.

According to De Mello (2000b), some of the challenges of fiscal decentralization
include the following:

2.8.1 Intergovernmental transfers
The failure to adequately address the question of how to manage intergovernmental
fiscal relations in order to meet the growing needs for public services at the local level
while preserving fiscal discipline nationally and sub-nationally. This requires
institutional clarity and transparency to avoid coordination failures that lead to
inefficient spending by local governments manifested in deficit bias and higher
borrowing costs that can aggravate macro-economic imbalances and instability. To
avoid such undesirable outcomes, there is a need for incentives and capacity building
on top of institutional checks and balances to ensure prudence in sub-national fiscal
management.

2.8.2 Expenditure management and financing
Assignment of expenditure and financing responsibilities to sub-national
governments can adversely affect service delivery in different ways. For example
decentralization of water and sanitation services to small local governments in Latin
America have led to a loss of economies of scale in service delivery. Many
19

governments in Latin America and Africa keep the financing of health and education
at national level because the spillover effects from health and education outcomes and
their impact on equity are national. Assignment of certain business taxes to local
levels in the United States have led to inefficient tax competition, constraining the
ability of municipalities to generate revenue and deliver services.

2.8.3 Adequacy of local revenues and autonomy
The lack of clearly defined, stable and uniform revenue assignments between the
center and sub-national governments inherent in this approach has weakened
budgetary management at the sub-national level and created perverse incentives for
sub-national governments to either hide locally mobilized revenue sources in extra-
budgetary funds or to simply reduce their efforts to mobilize revenues locally.
Punitive extractions by higher level governments in the form of clawing back any
additional revenues raised by lower level governments through reduced sharing rates
have also created perverse incentives for revenue mobilization, at the local levels in
many countries. This led to surplus funds being trapped in the treasury system and
captured by the central government by the end of the year. The resultant non-
uniformity in revenue sharing and the absence of stability undermined sound fiscal
management at the local level (Banks and Pigey 1988).

Some of the provisions in the Local Government Service Act, 2003 also pose some
challenges for MMDAs which include the following:

2.8.4 Local government borrowing
Subject to article 181 of the Constitution and to subsection (2), a District Assembly
may raise loans or obtain overdrafts within the Republic of the amounts, from the
sources, in the manner, for the purposes and on the conditions approved by the
20

Minister in consultation with the Minister responsible for Finance. An approval is not
required where the loan or overdraft does not exceed twenty million cedis and the
loan or overdraft does not require a guarantee by the Government. This poses a
challenge to local government (local government Services act, 2003 Act 656).

2.8.5 Budget discretion
Subject to section 3(a) (ii) of the Local Government Act, 2003, MMDAs are to
prepare the budget of the district related to the approved plans to the Minister
responsible for Finance for approval. Most often, not all the estimates in the budget
are usually approved by the Minister of Finance and this constitutes a challenge for
MMDAs. The ability of central authorities to pursue fiscal consolidation at the
expense of sub-national budgets by unilaterally transferring financial obligations for
politically sensitive social protection programmes, without providing a compensatory
increase in sub-national revenues demonstrates that in many countries expenditure
assignments continue to lack integrity, clarity and stability. The infringement on sub-
national budget autonomy is further extended by the fact that while transferring the
financial responsibility, central authorities retain control over key cost parameters
such as allowable rental charges for housing, administered prices for utilities,
minimum wages and benefit rates. Typically, the transfer of social protection
spending to local governments is an unfunded mandate. The persistence of such
unfunded mandates constrains sub-national budgetary autonomy and undermines
fiscal accountability by preventing a clear distinction between central and sub-
national responsibilities.

The adverse effects of decentralization on service delivery arise due to a number of
common factors. These factors include: first, lack of capacity at sub-national
21

government level, which restricts local service delivery, because local authorities lack
the ability to manage public finances and keep proper accounting procedures, second,
misalignment of responsibilities owing to incomplete decentralization or political
factors, for example, while local authorities may be responsible for education, higher
levels of government pay teachers, third, political capture by local elites when civic
participation in local government is low, finally, other problems including a soft
budget constraint that leads to over borrowing by sub-national governments. To
overcome these challenges, optimal assignment of expenditure and tax responsibilities
should be based on such criteria as economies of scale, spillover benefits, and cost of
administering taxes, tax efficiency, and equity. In practice, however, fiscal
decentralization often depends on political realities expediencies and historical
legacies (Ahmed et al 2005).

Recent studies suggest that the design and implementation of a multi-tier system of
government can significantly affect overall resource allocation in the economy and,
hence, economic efficiency, growth, and welfare (Davoodi and Zou, 1998; Martinez-
Vazquez and McNab, 2003; Akai and Sakata, 2002). A central argument for fiscal
decentralization leading to improved resource allocation rests on the assumption that
fiscal decentralization increases local influence over the public sector. However, in
theory, there is an equal possibility that fiscal decentralization simply transfers power
from national to local elites and that improved access of local elites to public
resources increases opportunities for corruption (Bardhan and Mookherjee, 2000).In
light of the possible effects that depend on the institutional design of fiscal
decentralization on economic growth, macro-economic management and corruption, a
key challenge for many transition economies has been to reap the economic benefits
of decentralization while maintaining control over public expenditures and borrowing,
22

restoring growth and improving accountability of local governments and officials to
limit corruption.

2.9 Prospects of Fiscal Decentralization
To address the related challenges with fiscal decentralization in Ghana, a number of
initiatives are being implemented. An inter-governmental fiscal framework that
clearly assigns service responsibilities between the central government and the sub-
national level has been developed and is being implemented. A Municipal Finance
Bill to assist local governments to source funds from the open capital market is being
considered by Parliament. In a bid to further strengthen the fiscal capacity of
MMDAs, the Ghana government and Development Partners (DPs) have introduced
the District Development Facility (DDF). This facility exists to provide additional
financial resources to MMDAs through an annual performance assessment to enable
them implement programmes and projects in their Medium-Term Development Plans
(MTDPs). The Ministry of Local Government and Rural Development also intends to
introduce the concept and practice of municipal contracts whereby Metropolitan
and Municipal Assemblies would be assessed at the technical/urban, financial and
organizational levels with a view to granting them additional financial assistance to
implement projects identified in a Priority Investment Programme prepared after the
assessment (Kunfaa, 2002).

In ensuring effective implementation of a good fiscal decentralization programme,
Smoke (2001) identifies five critical elements. These elements are:
An adequate enabling environment;
Assignment of an appropriate set of functions to local governments;
23

Assignment of an appropriate set of local own-source revenues to local
governments;
The establishment of an adequate intergovernmental fiscal transfer system;
and
The establishment of adequate access of local governments to development
capital.

According to Jorge (2011) different countries are at different levels of development
and refinement of their decentralized fiscal frameworks. Furthermore, the following
measures can be put in place in order to address the challenges of fiscal
decentralization in developing countries:

2.9.1 An Agenda for Reforming Expenditure Assignment and Management
A clear assignment of expenditure responsibilities should be at the top of national
reform agenda for local government finance. The following topics must be addressed:
i. Exclusive responsibilities must be identified.
ii. For concurrent competencies, specific responsibilities for various aspects
regulation, financing, and implementationmust be assigned.
iii. Higher level controls on local expenditures must be appropriately limited.
iv. With limited administrative capacity, asymmetric assignments between central
and local governments should be considered.
v. Methods to translate responsibilities into expenditure needs and financing
requirements should be developed.
vi. Unfunded mandates must be avoided.
vii. Funding and staffing of deconcentrated offices of line ministries should be
downscaled or eliminated if services are devolved.
24

viii. Implementation of expenditure decentralization needs to be strategic (capacity
building and technical assistance).

2.9.2 An Agenda for Improving Local Revenue Generation and Autonomy
The overarching goal should be to increase reliance on own revenues with meaningful
discretion.
In addition:
i. Reforming and modernizing property tax administration must be a priority;
and
ii. Diversifying sub-national tax bases:
a) Avoiding nuisance taxes and economic distortions;
b) Creating a shortlist of other good local taxes: vehicle taxes, business
license taxes, and betterment levies on real estate;
c) Implementing business taxes which offer opportunities (using sales
turnover as a proxy, but avoiding conflict with national value-added
taxes);
d) Furthering local tax autonomy through introduction of a local
piggyback personal income tax with a flat rate and possibly
payroll taxes; and
e) Implementing green taxes related to waste management, water and
air-polluting activities, and the production of energy.

2.9.3 An Agenda for Reforming Intergovernmental Transfers
Reforming intergovernmental transfers has several requirements. Among them are the
following:
i. Assuring predictable, regular, and transparent transfer mechanisms;
25

ii. Securing an appropriate balance among the various types of transfers (using
separate instruments for separate goals);
iii. Expanding and improving the use of equalization transfers based on a formula
using measures of expenditure needs and fiscal capacity and introducing an
explicit rule for the pool of funds to be distributed determining the source in
origin (fraternalor contributions by richer jurisdictions versus verticalor
contributions by the central government, and in the latter case, also
determining the amount as a percentage of central government revenues);
iv. Reviewing and improving mechanisms for allocating resources under
conditional grants (rule based as opposed to discretionary);
v. Consolidating specific grants where large numbers of poorly coordinated
programmes exist into fewer block grantsproviding larger but still
conditional discretion to sub-national governments;
vi. Implementing performance-based grants for encouraging budget process
reforms and improvements in service delivery; and
vii. Rationalizing capital grants (what is being pursued) and coordinating with
borrowing policies.

2.9.4 Local Government Borrowing and Investment Finance
To varying degrees, many countries in Asia and Africa, such as Indonesia,
Philippines, Ghana, and Nigeria allow for local government borrowing within a
regulated framework. Prudent, fiscally responsible local government borrowing needs
to be promoted in many countries in these regions. Legal and regulatory frameworks
for local government borrowing need to be strengthened. Options and support
mechanisms for local government borrowing must be expanded, including support,
where appropriate, to intermediate financial institutions or municipal development
26

funds (such as in the Philippines). Given the needs for public infrastructure, other
financing mechanisms should have wider adoption [tax increment financing,
betterment levies (valorization), and publicprivate partnerships].

2.9.5 Better Framing of Institutional Reform
The reforms above should be reinforced by other measures of an institutional nature:
i. Strengthen regular and systematic dialogue between sub-national
governments and the central government on intergovernmental financial
policy.
ii. Where deconcentrated units coexist with decentralized governments, identify
the right roles for and interactions between deconcentrated and devolved
government entities.
iii. Rethink the role of parallel institutions (social funds, etc.) to sub-national
units and try to limit them and incorporate them into the main sub-national
government stream.

2.10 History of decentralization in Ghana
Since independence, succeeding governments in Ghana have regarded
decentralization as a necessary condition not only for socio-economic development,
but also to achieve political objectives such as legitimacy and (paradoxically)
recentralization of power (Ayee 1994; 2004; 2008a). These political objectives
explain in part why the progress of decentralization has been slow and has often
resulted in recentralization, despite over 10 commissions and committees of enquiry
established to look at decentralization reforms. For instance, the post-colonial
government of the Convention Peoples Party (CPP) under Kwame Nkrumah (1957
1966) fearing that decentralization would promote divisive tendencies, encouraged
27

centralization of power in the nations capital, particularly the Office of the President.
The government also at times has fragmented the decentralized units as a way of
weakening them (Ayee 1994). In addition to these, charges of corruption and
ineptitude particularly in the CPP era have tainted their effectiveness. The local
government service was also hampered by the insecurity local government workers
felt in relation to their conditions of service, pay equity, and general well-being; a
unified civil service was considered desirable to enhance local administration. These
weaknesses, as well as other shortcomings (such as the dual hierarchy structure in
which the central and local government institutions operated, a lack of political and
bureaucratic commitment to decentralization, and inadequate financial and human
resources) continued up to the passage of local government reforms in 1988 (Ayee
2004a, b).

Under the Provisional National Defense Council (PNDC) from 1981 up to the
elections of 1992, Ghana undertook a range of efforts to extend governance at the
local level, and some of these were later incorporated into the present-day system.
This included the creation of local cells initially called Committees for the Defense
of the Revolution, along with Unit Committees. In 1988, the PNDC established the
District Assembly system with the passage of Law 207. The 1992 Constitution, along
with subsequent statutes and enabling legislation, superseded the pre-existing local
governance system and reorganized it to constitute a new framework. This
Constitution was the origin of the current arrangement, and was elaborated upon in
1993 with the Local Government Act, and with subsequent legislation. Ghanas
decentralization sequence moved from administrative decentralization (beginning in
the 1980s) to political decentralization (with elections in 1988 and the Constitution of
1992) and then to fiscal decentralization (after 1994).
28

CHAPTER THREE
METHODOLOGY
3.1 Introduction
This chapter explains the methodology employed by the researcher to carry out the
research work. The chapter also outlines how the researcher gathered information
from a wide range of approaches and analytical techniques which were used as the
basis for interpretations, explanations, inferences and predictions. It also highlights
the population of the study, the sample size, and the sampling technique, sources of
data, method of data collection as well as data analysis.

3.2 Research methods
This research adopts both qualitative and quantitative approaches. Qualitative
approach often categorizes data into patterns as the primary basis for organizing and
reporting results. The qualitative approach typically would use the following methods
for gathering information: observation, interview, open-ended questions and analysis
of documents and materials in order to gather non-numerical data. The quantitative
approach on the other hand would use highly structured methods such as close-ended
questions in gathering numerical data.

3.3 Data sources
The sources from which data was gathered for this research has been grouped into
two, namely primary and secondary data sources.

3.3.1 Primary sources of data
The primary sources from which data was collected were, administering of
questionnaires to the officials of the Municipality comprising the municipal finance
officer, the accountant, municipal planner, budget officer, the municipal chief
29

executive, the municipal coordinating director, who are better placed to provide first-
hand information on fiscal decentralization of the municipal assembly. Some
questionnaires were also administered to the revenue collectors and ordinary citizens
of the eight towns in the Wa municipality including ,Wa township, Busa, Charia, Boli,
Kpongu, Kperisi/Mengwe, Goripie, Kolkpong, to obtain first-hand information from
them to compare with that of those in the offices.

3.3.2 Secondary sources of data
The secondary sources from which data was collected were; rates fixing resolutions,
annual budgets and management reports on the comparison of budgets against actual,
Municipal Chief Executive (MCE) session reports, journal reports, newspaper
articles, the World Wide Web (internet),and books among others.

3.4 Sample Population and Sample Size
The population of this research covered all the eight towns within the Wa
Municipality. However, because of the dispersed nature of the geographical area and
large size of the population of 221,905 (2000 population and Housing census), there
search could not cover the entire population and hence a sample population was
drawn. The sample population for this research was made up of the entire population
out of which 150 was selected as the sample size.

3.5 Sampling techniques
Due to the dispersed nature of the population and the diversity of stakeholders in the
municipality, quota sampling which is a non-probability sampling technique was used
to assign quotas to the various sub-groups where the data was collected from in order
to ensure that views of the different stakeholders were captured and data collected is a
representation of the entire municipality. For the officials of the municipality,
30

purposive sampling which is a non-probability sampling technique was used to select
respondents who fell within the quota. For the revenue collectors of the eight towns,
respondents who fell within the quota were selected using convenience sampling,
which is a non-probability sampling technique. For the general public, a non-
probability sampling technique known as convenience sampling was used to select the
respondents who fell within the quota.

In line with the research objectives and the nature of fiscal decentralization in the
municipality, a quota of fourteen (18) people was given to the officials of the
municipal assembly, twenty-four (20) people to revenue collectors of the eight towns
with two or three people assigned to each town and one hundred and twelve (112)
people to the ordinary citizen who were further divided into fourteen (14) people each
to the eight towns.

3.6 Data Collection Instruments
The use of questionnaires and interview guides were the main data collection
instruments for the research.

3.6.1 Interview
For the purposes of this research, a semi-structured interview was employed. With
this, a set of questions based on the objectives of the study were prepared but other
questions were also asked emanating from responses given by the respondents. Group
interviews as well as face to face interviews were conducted for the ordinary citizens
in the eight towns. This form of data collection was used as a result of the following
reasons.
1. It afforded the researchers the opportunity to escape any issue of restriction
created by strictly going by predesigned questions.
31

2. It gave the opportunity for the researchers to ask follow up questions to answers
given by respondents. Misunderstandings were cleared up immediately during the
interview.
3. The researchers were also able to reword and reorder the questions as and when it
became necessary.

3.6.2 Questionnaires
Both closed and open ended questionnaires were used in the data collection exercise.
The closed ended questions were followed with options from which respondents
could choose. Some of the questions were closed because of the inhabitants level of
understanding of issues concerning fiscal decentralization in the municipality. For
respondents who could not understand the English Language, the questions were
explained to them in their local dialect by the researchers. The questionnaires totaling
one hundred and fifty (150) were interviewer-administered and respondents who had
difficulties in answering were assisted to answer the questions and all answered
questionnaires were submitted on the spot. This was done because it was envisaged
that many would not return the questionnaires when allowed to take them home to
answer and also due to the scattered nature of the towns in the municipality. In all,
three sets of questionnaires were designed, one for officials of the Municipality, one
for the revenue collectors of the eight towns and one for the ordinary citizens.

3.7 Data Analysis Tools
The primary data was analyzed with the help of the Statistical Package for Social
Sciences (SPSS) software. While SPSS was used to generate the data frequency tables
and their corresponding graphs Excel was used to refine the charts with regards the
picture effects. Tables as well as pictorial presentation were used to interpret the
32

results of the data gathered. Bar charts and pie charts were used in the pictorial
analysis. The secondary data was as well organized in tabular and graphical forms
where applicable. The data was analyzed around the main objectives of the study to
determine the relationships of the variables under study. The results were interpreted
and recommendations suggested appropriately. The study was concluded by the
summary of the whole research work through to the recommendations offered.

3.8 Profile of the Wa Municipal Assembly
The Wa Municipal assembly is one of the ten districts in the upper west region of
Ghana. It was established by the Local Government (Wa Municipal) (Establishment)
Instrument, 2004 (L. I. 1800), after the revocation of the Local Government (Wa
District Assembly) (Establishment) Instrument, 1988 (L.I. 1433). The Northern
Province comprised of three native authorities: the Wa, Lawra and the Tumu native
authorities representing the Waala, Dagaaba and Sissala ethnic groups. Wa has been
inhabited for several hundred years, first by Lobis and Dagaabas, and then by Islamic
scholars and traders who settled there in order to participate in the trans-Saharan
trade. These newcomers adopted the Dagaare language and to some extent simplified
its grammar, as well as incorporating numerous loan words from Hausa, such as lafia
(satisfactory) and alabasa (onion). The name of the town means 'come' in the Waali
language.

The Wa Municipality shares borders with the Wa West District to the West, Wa East
District to the East and South, and Nadowli District to the North. It lies within latitude
1
0
40
,
N to 2
0
45 N and longitude 9
0
32, to 10
0
20,W. It covers a total Land area of
5859sq.km, which is about 31.7% of the total Land area of the Upper West Region.
The implication of the location of the municipality for development is enhancing
33

bilateral trade and commerce with Franco phone countries. Wa town has the potential
to grow and be upgraded into both an industrial and commercial hub for the north-
western corridor of Ghana. According to the 2000 population and Housing census, the
Wa Municipality has a total population of 221,905. The growth rate of the
municipality is 2.7% for rural and 4% for the urban. The population density is
approximately 38 persons per square kilometers. There is growing population density
and consequently pressure on land and socio-economic infrastructure. This raises the
issue of population management, specifically, housing, streetism, conflict
management, land use planning to be addressed. The population structure of the Wa
municipality revealed a preponderance of the youth over the aged and females over
males. The youth form 49%, potential working population 47% and the aged 4%. This
means a high dependency ratio since the economically active population is 47%
compared to dependent population of 53%. The population is also a female dominated
one. That is 51% females against 49% males. Wa is in the southern part of the Sahel,
the semi-arid area south of the Sahara that ranges from Senegal to the Sudan. Average
annual rainfall is around 1000mm, almost all of which occurs between May and
October. Following the May-October rainy season is a cool dry period called the
Harmattan (in Waali sesiaos anga) when a steady, often dusty, north wind blows from
the Sahara. The hottest period of the year is in February and March when daytime
temperatures often reach 110 F (42
o
C).

Despite its urban status, Wa is in many ways still an agricultural community, and
many people make a good portion of their living in small scale farming. The main
crops are corn, millet, yams, okra and groundnuts. Upland rice is also farmed in a few
areas. The major fruit crop is the mango. Shea nuts are collected from wild trees, for
food or refinement into oils and cosmetics. The staple food of Wa is known as T-Z in
34

English. This is an abbreviation for the Hausa expression Tuo-zaafi, meaning 'very
hot'. In Waali, this food is referred to as sao. It is a thick porridge of corn flour eaten
like fufu - by tearing off a chunk and dipping into a soup, usually of okra. The rains
are however erratic, resulting in low crop yield. The service sector of the
municipalitys economy relates to a number of activities such as integrated marketing
system, tourism, hospitality industry as well as restaurants commonly called chop
bars. Scattered over the municipality are smaller/informal markets where foodstuffs
and other manufactured goods are sold. The industrial sector constitutes the least in
terms of employment. This sector is characterized by small scale manufacturing;
which is featured by easy entry, reliance on indigenous resources, family ownership
and the use of labour intensive technology. These include cottage industries such as
Shea butter and other oil and fat extractive industries, brewing of local drinks (pito),
black-smithing, metal works, weaving among others. These activities collectively
employ a small proportion of the economically active population of the municipality.
All the eight towns in the municipality have markets. Wa which is the largest of the
eight towns hosts the administrative headquarters of the municipality.

The municipality has eight towns namely, Wa township, Busa, Charia, Boli, Kpongu,
Kperisi/Mengwe, Goripie, Kolkpong. The internally generated funds of the
municipality come from the above mentioned economic activities and market tolls
from the eight major markets. These are collected by towns and reported on quarterly
basis to the assembly. Each town has a chairman, secretary and treasurer with
collectors that collect these funds. The town executives facilitate the work of these
collectors and involve personally in the collection where necessary. The municipality,
being one of the less developed municipalities in Ghana, needs substantial funds for
35

development in order to catch up with others. However, this cannot be done if the
municipality should rely entirely on the district assembly common fund.

36

CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS

4.1 INTRODUCTION
This chapter concentrates on the presentation and analysis of primary and secondary
data gathered purposely for this research and analyzed in line with our research
objectives. Both graphs and tables are used to present relationships between variables.

4.2 THE EXTENT OF DECENTRALIZATION OF FISCAL POWERS
This section examines the assemblys power to borrow, power to generate and use its
own revenue, power to prepare and approve its budgets and its discretionary power
over the use of DACF.

4.2.1 Power to borrow
Source: Field survey February, 2012
To find out whether the assembly has the power to borrow funds and whether there
are any restrictions attached, questionnaires were administered to eighteen (18)
members of staff at the assembly. Out of the eighteen respondents, sixteen (16)
members representing 88.9% indicated that the assembly has the power to borrow, but
this power is restricted to a ceiling of two thousand Ghana cedis (GH2000). Two (2)
Table 4.2.1 The assemblys power to borrow and its restrictions
Valid
Frequency Percent
Valid
Percent
Cumulative
Percent
Yes, but restricted to GH 2,000
No
Total
16 88.9 88.9 88.9
2 11.1 11.1 100.0
18 100.0 100.0
37

members of staff representing 11.1% however indicated that the assembly does not
have the power to borrow funds. From the responses given in table 4.2.1 above, the
assembly has the power to borrow but this power is restricted to a ceiling of
GH2000, hence any borrowing beyond this ceiling must be permitted by the sector
minister. However, the variation in response given by the other two members of the
sample could be as a result of lack of information with regards the assemblys power
to borrow, since this ceiling has been clearly stated in the Local Government Services
Act of 2003, Act 656.

4.2.2 Power to generate and use revenue
Figure 4.2.1 Apart from borrowing, does the assembly have power to generate
and use its own revenue?

Source: Field survey February, 2012
In order to find out about the assemblys power to generate and use its own revenue,
questionnaires were administered to a sample of eighteen members of staff of the
assembly. All the eighteen members representing 100% as shown in figure 4.2.1
above indicated that the assembly has absolute power to generate retain and use its
18
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Frequency
Yes
Yes
38

own revenue. This means that in terms of the power to generate, retain and use
revenue, the assembly has been given complete power to do so without any
restrictions.

4.2.3 Power to prepare and approve budgets
Table 4.2.2 Assemblys power to prepare and approve its budgets
Valid Frequency percent Valid
percent
Cumulative
frequency
Power to prepare and its
approve budget
18 100.00 100.00 100.00
Source: Field survey February, 2012
The table above shows the responses given by a sample of 18 respondents regarding
the assemblys power to prepare and approve its budgets. All the 18 respondents
representing 100% of the sample indicated that the assembly has been given complete
power to prepare and approve its budgets. This implies that in terms of the
preparation, approval and implementation of budgets, the assembly does not need any
approval from central government. Even though the assembly has been given absolute
power to prepare and approve its own budgets, they should ensure that amounts stated
in the budgets are realistic and reliable in order to increase the possibility of them
achieving their budgets estimates.

4.2.4 Restrictions on the use of the DACF
Figure 4.2.2 below shows information concerning restrictions placed on the assembly
with regards the use the DACF. Out of the total 18 respondents, 4 people
representing 22.22% of the sample indicated that mandatory deductions by the central
government restricts the assembly from having access to the full amount allocated to
39

it. Also, 5 people representing 27.78% of the sample indicated that government
policies/directives restrict the assemblys power to use its share of the DACF at its
own discretions. This implies that it is the central government that directs the
assembly as to how it is to use its share of the DACF. Furthermore, 2 people
constituting 11.11% of the sample indicated that the restrictions placed on the
assemblys use of the DACF are both the mandatory deductions and government
policies/directives. In addition, 3 respondents forming 16.67% mentioned expenditure
meeting budget estimates as one of the restrictions the assembly faces with regards
the use of the DACF. Four people representing 22.22% also said the DACF cannot be
used for administrative expenses as it is solely for developmental projects. This
information provided clearly indicates that the assembly does not have absolute power
over the use of the DACF.

Figure 4.2.2 Restriction placed on the use of the DACF

Source: Field survey February, 2012

22%
28%
11%
17%
22%
Mandatory deductions
Government
o!icies"directives
#ot$ % and #
&'enditure must meet
(ud)et estimates
*annot (e used +or
admin,e'enses is so!e!y +or
deve!omenta! ro-ects
40

4.3 EFFECTIVENESS OF FISCAL DECENTRALIZATION
This section covers the revenue performance of the assembly, the assemblys ability
to meet its budget plans and the level of education of the revenue collectors.

4.3.1 Revenue performance
Table 4.3.1 Budgeted and actual revenue for 2009 and 2010
REVENUE BUDGET ACTUAL
VARIVARIAN
CE BUDGET ACTUAL VARIANCE
HEAD ESTIMATE REVENUE ESTIMATE REVENUE
2010 (GH) 2009 (GH) 2009 (GH) 2009 (GH) 2010 (GH) 2010 (GH)
Rates

20,300.16 48,812.11

28511.95F

50,300.00 58,658.47 8358.47F
ll Lands

25,800.12 14,998.00

10802.12A

25,800.00 13,638.10 12161.90A
Fees & Fines

100,238.28 80,411.20

19827.08A

95,558.00 96,452.80 894.80F
License

29,521.56 25,490.80

4030.76A

30,580.00 6,080.50 24499.50A
Rent

23,632.08 20,843.00

2789.08A

24,112.00 19,816.64 4295.36A
Grants 4,883,041.44 2,015,552.90 2867488.54A 19,283,231.00 3,337,693.31 15945537.69A
Investment

8,920.08 14,323.49

5403.41F

41,680.00 17,691.51 21988.49A

Miscellaneous

4,000.08 5,200.38

1200.30F

4,000.00 18,124.54 4124.54F
TOTAL 5,095,453.80 2,225,631.88 2869821.92A

19,555,261.00 3,568,155.87 15858105.13A
Source: Wa municipal assembly
From table 4.3.1 above, A represents adverse balance and F represents favorable
balance.
The table above represents the budget estimates, actual revenues and variances of Wa
municipal assembly for 2009 and 2010. Out of the total amount of GH5,095,453.80
budgeted for 2009 only GH2,225,631.88 was generated by the assembly resulting in
41

an adverse variance of GH2,869,821.92. This was a result of the assemblys failure
to meet its revenue target through rent, lands, license, fees and fines and grants. In
2010, an amount of GH3,568,155.87 was generated out of a budgeted amount of
GH19,555,261.00 which resulted in an adverse variance of GH 15,858,105.13. This
was as a result of the assemblys inability to meet its revenue target in terms of lands,
license, rent, grants and investment. In each of these years, the assembly was unable
to achieve even 50% of its budgeted revenue which implies that the assembly is not
being effective or living up to expectation in terms of its revenue performance. This
situation could be attributed to factors such as; ineffective and inexperienced budget
officers who cannot make attainable budget estimates, the assembly not making good
use of all its sources of finance, especially in the area of property tax where the
assembly does not have valuers to value its numerous properties to enable it tap
revenue from property tax as evidenced through an interview with the budget officer,
ineffective revenue mobilization team and leakages in the revenue system. The
implications of these adverse variances could be serious as the assembly may not be
able to carry out most of its planned projects and also lead to default in repayment of
loans taken.

4.3.2 Ability to meet budget plans
Figure 4.3.1 does the assembly always meet its budget plans?

Source: Field survey February, 2012
0
2
4
6
8
10
12
14
16
%(!e to meet (ot$ revenue and
e'enditure !ans
.na(!e to meet (ot$ revenue and
e'enditure !ans
F
r
e
q
u
e
n
c
y
42

From the bar chart above ( figure 4.3.1), four respondents constituting 22.2%
indicated that in terms of meeting budget plans, the assembly is able to meet both
revenue and expenditure plans. It is also realized that fourteen people representing
77.8% said that the assembly is unable to meet both revenue and expenditure plans.
The assemblys ability to meet both revenue and expenditure plans as indicated by the
four respondents is welcome news for the assembly. However, majority of the
respondents (77.8% of the sample) indicated that the assembly is not able to meet
both its revenue and expenditure plans. This is a serious situation and needs to be
looked into. It may be as a result of the assembly making unrealistic budget estimates
or revenue collectors inability to generate enough revenue to meet budget plans. The
revenue collectors inability to generate enough revenue may be due to their low level
of education as shown in table 4.3.2 below. In table 4.3.2 below, majority of the
revenue collectors (fourteen people representing 70% of the sample) have their formal
education up to the basic school level as against only six people representing 30%
who have their formal education up to the secondary level. Their low level of
education may have an impact on their ability to distinguish taxable activities from
non-taxable activities (understanding of tax issues) and may end up not taxing certain
businesses that are taxable and also as noted from the field survey that some revenue
collectors only go to traders who are willing to pay the taxes without dragging them,
thereby reducing the amount of revenue they are able to generate.

43

4.3.3 Revenue collectors education level
Table 4.3.2 Level of education of revenue collectors
Valid
Frequency Percent
Valid
Percent
Cumulative
Percent
Basic
Secondary
Total
14 70.0 70.0 70.0
6 30.0 30.0 100.0
20 100.0 100.0
Source: Field survey February, 2012.

4.4 THE CHALLENGES OF FISCAL DECENTRALIZATION
This section examines the challenges the assembly encounters in acquiring loans, the
assemblys challenges in preparing its budgets, the assemblys challenges in
mobilizing revenue, the challenges tax payers face in paying taxes as well as the
challenges revenue collectors usually encounter in carrying out their duties of
mobilizing revenues for the assembly.

4.4.1 Challenges in acquiring loans
Figure 4.4.1 challenges the assembly encounters in acquiring loans

Source: Field survey February, 2012
50%
6%
11%
33%
Lack of or inadequate
collateral
Unfavourable time of
repayment
High interest rates
Other:limited ceiling of
GHS2000
44

Figure 4.4.1 above illustrates the challenges the assembly encounters in acquiring
loans. Nine respondents representing fifty percent of the sample indicated that the
assembly lacks or does not have adequate collateral security in acquiring loans. This
constitutes the major challenge of the assembly in terms of acquiring loans. The
implication of this is that projects that the assembly intends to finance through loans
will not see the light of day. One respondent representing 6% of the sample indicated
that unfavorable time of repayment of loans poses a challenge to the assembly when it
comes to acquiring loans. Since the assembly is a service rendering organization and
most at times goes in for loans which it usually invests in long term projects of which
the benefits do not flow to the assembly directly, there are instances where these loans
may be due for repayment at a time the assembly does not have money to service
them. High interest rates is yet another challenge the assembly encounters in
acquiring loans as indicated by two respondents constituting 11% of the sample as
shown in figure 4.4.1 above. The interest rates usually charge by financial institutions
are so high that the assembly finds it difficult to generate enough funds to repay the
interest plus the principal as to and when they fall due. Six respondents making up
33% of the sample said that the limited ceiling of GH2,000 poses a challenge to the
assembly in the process of acquiring loans as evidenced in the Local Government Act,
1993, (Act 462), that MMDAs are allowed to borrow up to the tune of GH2000. The
implication of this is that in order for the assembly to borrow beyond this amount,
permission must be sought from the sector minister which involves some level
bureaucracy and may delay certain projects the assembly wishes to finance through
the loans.


4.4.2 Challenges in preparing budgets
Figure 4.4.2 challenges the assembly face in preparing its budgets
Source: Field survey February, 2012
Figure 4.4.2 above shows the challenges the assem
budgets. One respondent
budget staff is one of the challenges the assembly encounters in preparing its budgets.
This may result in delay in budget preparation as well
of budgets being prepared because of the few staff and their rush to prepare budgets
on time, respectively. Inadequate skills on the part of some budget staff are yet a
challenge the assembly faces in preparing its budgets as
forming 27.8% of the sample. In line with inadequacy of skills on the part of some
budget staff is the difficulty in making budget estimates, since this may hinder their
ability to use economic, mathematical and statistical models
budget estimates that are reliable, as evidenced by
16.7% of the sample. Two respondents constituting 11.1
that both inadequate skills on the part of some budget staff and the
making budget estimates are the challenges the assembly face in its budget
0
1
2
3
4
5
6
7
8
/nadequate
(ud)et sta++
F
r
e
q
u
e
n
c
y
45
4.4.2 Challenges in preparing budgets
Figure 4.4.2 challenges the assembly face in preparing its budgets
Source: Field survey February, 2012
Figure 4.4.2 above shows the challenges the assembly encounter in preparing its
budgets. One respondent constituting 5.6% of the sample indicated that inadequate
budget staff is one of the challenges the assembly encounters in preparing its budgets.
This may result in delay in budget preparation as well as compromising on the quality
of budgets being prepared because of the few staff and their rush to prepare budgets
on time, respectively. Inadequate skills on the part of some budget staff are yet a
challenge the assembly faces in preparing its budgets as indicated by five people
% of the sample. In line with inadequacy of skills on the part of some
budget staff is the difficulty in making budget estimates, since this may hinder their
ability to use economic, mathematical and statistical models appropriately in making
budget estimates that are reliable, as evidenced by three respondents representing
16.7% of the sample. Two respondents constituting 11.1% of the sample indicated
that both inadequate skills on the part of some budget staff and the
making budget estimates are the challenges the assembly face in its budget
0eries11 7
/nadequate
s2i!!s on t$e
art o+ some
(ud)et sta++
3i++icu!ty in
ma2in) (ud)et
estimates
#ot$ # and * %!! t$e a(ove
Figure 4.4.2 challenges the assembly face in preparing its budgets

ter in preparing its
% of the sample indicated that inadequate
budget staff is one of the challenges the assembly encounters in preparing its budgets.
as compromising on the quality
of budgets being prepared because of the few staff and their rush to prepare budgets
on time, respectively. Inadequate skills on the part of some budget staff are yet a
icated by five people
% of the sample. In line with inadequacy of skills on the part of some
budget staff is the difficulty in making budget estimates, since this may hinder their
appropriately in making
three respondents representing
% of the sample indicated
that both inadequate skills on the part of some budget staff and the difficulty in
making budget estimates are the challenges the assembly face in its budget
0eries11 7
%!! t$e a(ove
46

preparation. 38.9% representing seven respondents of the sample said that the
assemblys challenges in preparing its budgets are; inadequate budget staff,
inadequate skills on the part of some budget staff and difficulty in making budget
estimates. All these challenges need to be investigated and addressed to pave way for
effective budgeting exercise.

Source: Field survey February, 2012
Table 4.4.1 above depicts the challenges the assembly face toward its revenue
mobilization drive. Two respondents out of eighteen mentioned that the assembly
loses revenue through tax evasion by tax payers. Although this represents a small
percentage of the challenges the assembly faces in revenue mobilization, its impact on
the amount of revenue the assembly can generate within a period cannot be under
estimated. Seven respondents representing 38.9% of the sample pointed to lack of
cooperation from tax payers as a challenge. The survey showed that most tax payers
4.4.3 Challenges in mobilizing revenue
Table 4.4.1 Challenges The Assembly Faces In Mobilizing Revenue
Valid
Frequency Percent Valid Percent
Cumulative
Percent
Tax evasion 2 11.1 11.1 11.1
Lack of cooperation from
taxpayers
7 38.9 38.9 50.0
Pilfering on the part of
revenue collectors
3 16.7 16.7 66.7
All the above 6 33.3 33.3 100.0
Total 18 100.0 100.0
47

are not willing to cooperate with the revenue collectors as they go on their rounds to
collect taxes. This could be as a result of several factors including lack of public
sensitization on the part of the assembly on the need to pay tax, unfavorable time of
tax collection, some of the tax payers feel that the tax system is not fair, and lack of
collaboration between the assembly and the tax payers in the determination of the tax
rates. Pilfering on the part of revenue collectors is one of the challenges mentioned by
three respondents constituting 16.7% of the sample. Some of the revenue collectors do
not account for all the moneys they collect from the tax payers in the market since
some of them always duplicate the tickets they issue to the traders and even
sometimes they do not issue tickets at all especially when they feel a particular tax
payer is not educated or does not care about collecting tickets for moneys paid. 33.3%
representing six respondents of the sample indicated that tax evasion, lack of
cooperation from tax payers and pilfering on the part of revenue collectors are all
challenges facing the assembly in its revenue mobilization. Also, an interview with
the budget officer revealed that the assembly faces a challenge in generating revenue
from property taxes. This is as a result of the fact that the assembly does not have
valuers who will place values on the properties of tax payers to enable the assembly
gets the needed revenue from property taxes.

4.4.4 Challenges taxpayers usually face
Table 4.4.2 below represents responses given by the general public about the
challenges they encounter in honoring their taxes obligations. Out of the hundred and
twelve respondents, 56 people constituting 50% of the sample indicated that time of
payment of taxes is not favorable or sometimes not known as a challenge. The
taxpayers think that the time the assembly gives for payment of taxes poses a
challenge to them because of the fact that as at the time the revenue collectors usually
48

come to take the taxes they do not sometimes have money to pay. An interview with
some taxpayers revealed that sometimes, some of the collectors even come in the
night to take taxes which causes them a lot of inconvenience. This challenge needs to
be looked into and adjusted if possible to ensure favorable time of payment for
taxpayers. Fifteen respondents representing 13.4% of the sample mentioned place of
payment not known as a challenge. Some taxpayers are always ready to pay the tax
but they do not always know where to go and pay. This implies that the revenue
offices are not situated at strategic points where taxpayers can easily locate. Twenty-
nine respondents representing 25.9% of the sample mentioned the tax amount as
always being too much as a challenge for them. According to them the tax system is
not fair because the amount they are always charged do not reflect the amount of
income they earned. Twelve respondents representing 10.7% of the sample indicated
that one of the challenges they face is that sometimes that tax collectors do not always
come to them for the taxes. This means that they have to go to the internal revenue
office to honor their tax obligation but due to the busy nature of their businesses they
are sometimes unable to do that and as a result they have been encountering
challenges with the assembly.

Table 4.4.2 challenges faced by tax payers in paying taxes
Valid Frequency Percent Valid
percent
Cumulative
frequency
Time of payment not favorable or not known 56 50 50 50
Placement of payment not known 15 13.4 13.4 63.4
The tax amount is always too much 29 25.9 25.9 89.3
Collectors do not come to take the taxes
sometimes
12 10.7 10.7 100
Total 112 100 100
Source: Field survey February, 2012

4.4.5 Challenges revenue collectors usually encounter
Figure 4.4.3 Challenges faced by revenue collectors in collecting revenue
Source: Field Survey February, 2012.
Figure 4.4.3 above shows the responses by twenty revenue collectors regarding the
challenges they face in collecting revenues. Two respondents said that one of the
challenges that they faced is that they do not have adequate logistics that will enable
them to discharge their responsibilities effectively. They said that sometimes the
receipt books do get finish on the field and also they do not have logistics such as cars
and motor vehicles which they can use to ease their movements around the whole
town to collect the taxes from taxpayers and as a result it reduces the amount of
revenue they are able to generate for the assembly. Fifteen respondents representing
75% of the sample indicated that lack of co
challenge that they do face on the field. They said some taxpayers are sometimes not
willing to honor their tax obligation because they do not know what the tax moneys
are being used for and also due to their lack of knowledge about the need to pay tax.
One respondent also said that they sometimes find it difficult to locate unregistered
businesses. There are some businesses that are not registered and as a result they do
5%
10%
49
4.4.5 Challenges revenue collectors usually encounter
Figure 4.4.3 Challenges faced by revenue collectors in collecting revenue
Source: Field Survey February, 2012.
Figure 4.4.3 above shows the responses by twenty revenue collectors regarding the
challenges they face in collecting revenues. Two respondents said that one of the
challenges that they faced is that they do not have adequate logistics that will enable
m to discharge their responsibilities effectively. They said that sometimes the
receipt books do get finish on the field and also they do not have logistics such as cars
and motor vehicles which they can use to ease their movements around the whole
collect the taxes from taxpayers and as a result it reduces the amount of
revenue they are able to generate for the assembly. Fifteen respondents representing
75% of the sample indicated that lack of co-operation from taxpayers is also a
ey do face on the field. They said some taxpayers are sometimes not
willing to honor their tax obligation because they do not know what the tax moneys
are being used for and also due to their lack of knowledge about the need to pay tax.
said that they sometimes find it difficult to locate unregistered
businesses. There are some businesses that are not registered and as a result they do
10%
75%
10%
Inadequate logistics
Lack of co-operation
from tax payers
Difficulty in locating
unregistered businesses
All the above
Figure 4.4.3 Challenges faced by revenue collectors in collecting revenue

Figure 4.4.3 above shows the responses by twenty revenue collectors regarding the
challenges they face in collecting revenues. Two respondents said that one of the
challenges that they faced is that they do not have adequate logistics that will enable
m to discharge their responsibilities effectively. They said that sometimes the
receipt books do get finish on the field and also they do not have logistics such as cars
and motor vehicles which they can use to ease their movements around the whole
collect the taxes from taxpayers and as a result it reduces the amount of
revenue they are able to generate for the assembly. Fifteen respondents representing
operation from taxpayers is also a
ey do face on the field. They said some taxpayers are sometimes not
willing to honor their tax obligation because they do not know what the tax moneys
are being used for and also due to their lack of knowledge about the need to pay tax.
said that they sometimes find it difficult to locate unregistered
businesses. There are some businesses that are not registered and as a result they do
Inadequate logistics
operation
from tax payers
Difficulty in locating
unregistered businesses
All the above
50

not have their addresses or information concerning where they are situated and this
makes it difficult for them to trace such businesses to ensure that they pay their taxes.
Two respondents representing 10% of the sample indicated that inadequate logistics,
lack of co-operation from taxpayers, difficulty in locating unregistered businesses are
the challenges that they face in collecting revenues.

4.5 REMEDIES TO THE CHALLENGES OF FISCAL DECENTRALIZATION
This section covers the suggested solutions to overcoming the challenges the
assembly encounters in acquiring loans, in preparing its budgets, in mobilizing
revenue, the challenges taxpayers face in paying taxes and also the challenges revenue
collectors encounter in mobilizing revenue for the assembly.

4.5.1 Measures to overcome challenges in borrowing funds
Table 4.5.1 Measures to overcome assemblys challenges in borrowing funds
Valid
Frequency Percent
Valid
Percent
Cumulative
Percent
Charging of moderate interest on loans
by financial institutions
1 5.6 5.6 5.6
Financial institutions should demand a
reasonable amount of collateral
security
9 50.0 50.0 55.6
Financial institutions should extend
period of repayment of loans if
necessary
1 5.6 5.6 61.1
Other: The ceiling should be reviewed
upwards
7 38.9 38.9 100.0
Total 18 100.0 100.0
Source: Field survey February, 2012
51

Table 4.5.1 above depicts the responses given by eighteen respondents about
measures to be put in place to overcome challenges the assembly face in borrowing
funds. Out of the eighteen respondents, one said that financial institutions should
charge moderate interest on loans. Since basic interest rates are usually fixed by the
Bank of Ghana (BoG) in collaboration with the Ministry of Finance, they should try
to reduce the basic rate which will enable the banks to also reduce the interest rates
they charge on loans. Nine respondents representing 50% of the sample indicated that
financial institutions should demand a reasonable amount of collateral security.
Financial institutions should reduce the amount of collateral they require before
advancing loans to borrowers which will enable most borrowers especially the
assembly to meet these borrowing requirements. One respondent representing 5.6% of
the sample further indicated that financial institutions should extend the period of
repayment of loans if necessary. This will allow MMDAs enough time to generate
revenue from their various revenue sources to repay such loans and also allow them to
use such loans to invest in long term projects. Seven respondents representing 38.9%
suggested that the MMDAs borrowing ceiling of GH2000 should be reviewed
upwards. This will enable the MMDAs to raise sufficient funds through loans in order
to finance their budgets and also to undertake developmental projects.



4.5.2 Measures to overcome challenges in mobilizing revenue
Figure 4.5.1 Measures to be put in place to ensure effective revenue generation
Source: Field Survey, February 2012.
Figure 4.5.1 depicts the responses given by eighteen staff members regarding the
measures that can be put in place in order to ensure effective revenue mobilization in
the assembly. Four respondents out of the eighteen indicated that the assembly should
carry out public sensitization on the need to pay tax. They can do this through the
media, use of information vans among others. This will enlighten the public on how
their tax moneys are being used thereby motivating them to always honor their tax
obligations. Three respondents representing 16.7% of the sample further indicated that
the assembly should ensure that revenue collectors always issue receipts to tax payers.
This can be done by sensitizing the public to always insist on receipts any time they
pay taxes. The assembly can also set up a surveillance committee which will always
conduct surprise checks on tax payers to ensure that revenue collectors are actually
issuing receipts to them any time they pay taxes. One person also said that the
assembly should punish tax evaders severely in order to deter others from perpetrating
the same acts. This can be done by confiscating their goods, taking legal actions
against them, closing their shops or banning them completely from operation by
0
2
4
6
8
10
12
&ducation o+ t$e
u(!ic on t$e need
to ay ta'
F
r
e
q
u
e
n
c
y
52
4.5.2 Measures to overcome challenges in mobilizing revenue
Figure 4.5.1 Measures to be put in place to ensure effective revenue generation
Field Survey, February 2012.
Figure 4.5.1 depicts the responses given by eighteen staff members regarding the
measures that can be put in place in order to ensure effective revenue mobilization in
the assembly. Four respondents out of the eighteen indicated that the assembly should
rry out public sensitization on the need to pay tax. They can do this through the
media, use of information vans among others. This will enlighten the public on how
their tax moneys are being used thereby motivating them to always honor their tax
ons. Three respondents representing 16.7% of the sample further indicated that
the assembly should ensure that revenue collectors always issue receipts to tax payers.
This can be done by sensitizing the public to always insist on receipts any time they
taxes. The assembly can also set up a surveillance committee which will always
conduct surprise checks on tax payers to ensure that revenue collectors are actually
issuing receipts to them any time they pay taxes. One person also said that the
ould punish tax evaders severely in order to deter others from perpetrating
the same acts. This can be done by confiscating their goods, taking legal actions
against them, closing their shops or banning them completely from operation by
0eries11 10
&ducation o+ t$e
u(!ic on t$e need
to ay ta'
/nsist t$e issue o+
receits to ta'
ayers
0evere!y unis$in)
ta' evaders to
deter ot$ers
%!! t$e a(ove
Figure 4.5.1 Measures to be put in place to ensure effective revenue generation

Figure 4.5.1 depicts the responses given by eighteen staff members regarding the
measures that can be put in place in order to ensure effective revenue mobilization in
the assembly. Four respondents out of the eighteen indicated that the assembly should
rry out public sensitization on the need to pay tax. They can do this through the
media, use of information vans among others. This will enlighten the public on how
their tax moneys are being used thereby motivating them to always honor their tax
ons. Three respondents representing 16.7% of the sample further indicated that
the assembly should ensure that revenue collectors always issue receipts to tax payers.
This can be done by sensitizing the public to always insist on receipts any time they
taxes. The assembly can also set up a surveillance committee which will always
conduct surprise checks on tax payers to ensure that revenue collectors are actually
issuing receipts to them any time they pay taxes. One person also said that the
ould punish tax evaders severely in order to deter others from perpetrating
the same acts. This can be done by confiscating their goods, taking legal actions
against them, closing their shops or banning them completely from operation by
0eries11 10
%!! t$e a(ove
53

taking their operating licenses from them. Ten respondents constituting 55.6% of the
sample indicated that: education of the public on the need to pay tax, insisting on the
issue of receipts to tax payers, and severely punishing tax evaders in order to deter
others, are some of the measures that the assembly can put in place in order to ensure
effective revenue mobilization in the assembly.
Source: Field Survey February, 2012
Table 4.5.2 above depicts the responses given by the twenty revenue collectors with
regards how the challenges they face can be overcome. Fourteen respondents
representing 70% of the sample said that there should be public sensitization on the
need to pay tax. The assembly should educate the public on why they should pay
taxes in order for the assembly to undertake developmental projects and provide other
social amenities. Three respondents representing 15% of the sample also suggested
that the assembly should provide them with adequate logistics necessary for them to
execute their responsibilities effectively and efficiently. These logistics include; motor
4.5.3 Measures to overcome challenges revenue collectors face
Table 4.5.2 Measures to overcome the challenges revenue collectors face

Valid Frequency Percent
Valid
Percent
Cumulative
Percent
Public sensitization on tax payment 14 70.0 70.0 70.0
Provision of adequate logistics 3 15.0 15.0 85.0
Public sensitization on the need to register
businesses
1 5.0 5.0 90.0
All the above 2 10.0 10.0 100.0
Total 20 100.0 100.0
54

vehicles, receipt books, carbon papers, pens among others, in order for them to
effectively carry out their responsibilities. One person suggested that the assembly
should educate the public on the need to register their businesses, as this will make it
easy for the revenue collectors to easily locate the businesses to collect the taxes. Two
respondents also suggested that all the measures discussed above should be put in
place in order to help overcome the challenges the revenue collectors face in the
performance of their duties.

4.5.4 Measures to overcome challenges in preparing budgets
Table 4.5.3 below shows the responses given by eighteen staff members concerning
the measures that can be put in place in order to overcome the challenges the
assembly encounters during the preparation of its budgets. Two respondents
representing 11.11% of the sample suggested that the assembly should be given more
budget staff in order to help reduce the work load that is placed on the few budget
staff. This would help reduce the pressure that is always on the budget staff to prepare
budgets on time thereby minimizing errors in the budgets. Eight respondents
representing 44.44% of the sample said the assembly should organize periodical
training programmes for the budget staff in order to help improve their knowledge in
budget preparation. The training programmes would provide an opportunity for the
budget staff to learn how to use mathematical, statistical and economic models in
making appropriate and reliable budget estimates. One respondent also indicated that
the budget staff should always employ economic and statistical models in making
budget estimates. This would help ensure that estimates made are realistic and
reliable. Two respondents constituting 11.11% of the sample recommended that both
organizing training programmes for budget staff and employment of economic and
statistical models in making budget estimates are some of the measures that the
55

assembly can put in place in order to overcome the challenges it encounters in
preparing its budgets. Five respondents constituting 27.78% of the sample said that
having more budget staff in the assembly, organizing training programmes for the
budget staff, and employment of economic and statistical models in making budget
estimates are some of the measures that can be used to overcome the challenges the
assembly faces in preparing its budgets.

Table 4.5.3 Measures to overcome the challenges the assembly encounter in
preparing its budgets
Valid
Frequency Percent
Valid
Percent
Cumulative
Percent
The assembly should be given more budget
staff
2 11.11 11.11 11.11
Training for budget staff 8 44.44 44.44 55.55
Employment of economic and statistical
models in making budget estimates
1 5.56 5.56 61.11
Both B and C 2 11.11 11.11 72.22
All the above 5 27.78 27.78 100.0
Total 18 100.0 100.0

Source: Field Survey February, 2012

4.5.5 Measures to overcome challenges taxpayers face
As can be seen from table 4.5.4 below, 48.2% of the sample representing fifty-four
members stated that as a measure to overcome some of the challenges taxpayers face
in honoring their tax responsibility, people should only be taxed when they have made
56

sales. With this measure honored, no tax payer would have any excuse not to pay their
taxes when they are due. Also seven respondents forming 6.3% of the sample
indicated that duly informing taxpayers of the places where they can at their
convenience go and pay their taxes is yet another measure towards combating the
challenges taxpayers face in honoring their tax obligations. This will enable taxpayers
to pay their taxes as to and when they are capable. Twenty-eight people representing
25% of the sample suggested that making the tax system fair to all is a measure
towards overcoming the challenges that taxpayers face in paying their tax. This will
ensure equity in the tax system as well. 20.5% of the sample representing twenty-
three people indicated that tax collectors should always come at the right time for
taxes. This would enable the tax payers to honor their tax liabilities at the times they
have the means to do so.


Source: Field Survey February, 2012.
Table 4.5.4 Measures to overcome challenges faced by taxpayers in paying taxes
Valid
Frequency Percent
Valid
Percent
Cumulative
Percent
People should be taxed only
when they have made sales
54 48.2 48.2 48.2
Informing people about
places for tax payment
7 6.3 6.3 54.5
The tax system should be fair 28 25.0 25.0 79.5
Collectors should come at
the right time
23 20.5 20.5 100.0
Total 112 100 100

57

4.6 PROSPECTS OF FISCAL DECENTRALIZATION
This section examines the way forward of fiscal decentralization in the Wa
Municipality. For fiscal decentralization programme to be effective in the Wa
Municipality, the following elements must be present:

4.6.1 An adequate enabling environment
The establishment of the Local Government Act was a move towards transferring
powers and responsibilities to MMDAs to operate effectively. This provides a
foundation on which to build decentralization, but it does not by any means guarantee
successful fiscal decentralization. Even though the local government act was
established to transfer powers and responsibilities to MMDAs to operate effectively, it
has placed certain restrictions on them like not borrowing beyond the ceiling of
GH2000. Other elements however must be present in order to create an enabling
environment for MMDAs to operate effectively. There must be a strong national will
to decentralize; this is present as the central government has adopted the composite
budget approach to facilitate the transfer of resources to MMDAs, there must be
development of special-purpose some-what more neutral and high-level
mechanisms to oversee and co-ordinate decentralization and local government reform
however, fiscal decentralization programmes in the Wa Municipality are under the
direction of fairly bureaucratized, often competing, and poorly co-ordinated central
agencies such as local government, finance and planning among others with a direct
stake (loss of power) in decentralization, and development of significant transfer
programmes that will allow central government to transfer substantial proportions of
total central revenues to MMDAs however, the proportion of these transfers to
MMDAs is inadequate for them to carry out their responsibilities.

58

4.6.2 Assignment of an appropriate set of functions to local governments
Central government should always decentralize appropriate set of functions to
MMDAs to enable them operate effectively however, regardless of what the
constitution or law says, central government agencies in Ghana do not have the desire
to decentralize services they have been providing, especially where this involves a
loss of prestige and resources to them and they perceive each other as competitors.
Also, decentralization of sectors to MMDAs should commensurate with their capacity
to handle these sectors however; MMDAs in Ghana are always given a lot of
functions and responsibilities without the necessary accompanying resources for them
to carry them out.

4.6.3 Assignment of an appropriate set of local own-source revenues to local
governments
Central government should always assign appropriate set of local own-source
revenues to MMDAs to enable them operate effectively. On the contrary, the sources
of revenue assigned to MMDAs in Ghana are inadequate to meet their local
expenditure requirements because lucrative tax fields (for example, income tax, sales
tax, import and export duties) all belong to the central government, while local
government has access to only low yielding taxes such as basic rates and market tolls.

4.6.4 The establishment of an adequate intergovernmental fiscal transfer system
The limited sources of revenue for the MMDAs make it difficult for them to generate
enough revenue to meet their expenditure requirements. Therefore, central
government should develop intergovernmental fiscal transfer systems to help: cover
local government fiscal imbalances, supplement inadequate local own-source
revenues to improve the ability of local governments to meet their expenditure
59

responsibilities, meet national redistribution objectives thereby helping to offset fiscal
capacity differences among local governments, encourage local expenditures on
particular goods and services that exhibit positive externalities or are considered to be
basic needs that should be distributed less unequally than the ability to pay for them.
However, the five percent of national revenue which is always transfer to MMDAs as
DACF is insufficient considering the broad range of responsibilities assigned to them.

4.6.5 The establishment of adequate access of local governments to development
capital
Since the sources of revenues for MMDAs in Ghana are limited and
intergovernmental transfers to them is not sufficient, there is the need for central
government to allow MMDAs to access sufficient funds from financial institutions to
supplement their budgets. On the contrary, MMDAs in Ghana though are allowed to
borrow; this borrowing power is restricted to a ceiling of GH2000 which is not
sufficient.



60

CHAPTER FIVE
SUMMARY OF FINDINGS, RECOMMENDATIONS AND CONCLUSION
5.1 INTRODUCTION
This chapter focuses on summarizing the research findings about the challenges faced
by MMDAs in implementing fiscal decentralization and making recommendations for
the way forward based on the findings of this study.

5.2 SUMMARY OFFINDINGS
5.2.1 The extent of decentralization of fiscal powers
Generally, the extent of decentralization of fiscal powers in the municipality is not a
complete one and this is applicable to other MMDAs in Ghana. The assembly has the
power to generate, retain and use its revenue, the power to prepare and approve its
budgets, power to invest surplus funds if any and the power to borrow funds where
necessary to supplement its budget deficits, however, this power to borrow is
restricted to a ceiling of GH2000. This makes it difficult for the assembly to
undertake developmental projects which will involve any amount more than
GH2000 and which are to be financed through loans. When it comes to the issue of
the DACF, the assembly has no power to use the DACF at its own discretion. The
DACF usually comes with an ambit of vote (spending warrant) and the assembly must
disburse the DACF strictly according to the instructions of the warrant. In a whole,
complete fiscal powers have not been transferred to MMDAs in Ghana. While some
fiscal powers have been transferred to them, the central government still holds onto
some, which are crucial for the effective operations of MMDAs in Ghana.



61

5.2.2 Effectiveness of fiscal decentralization
The situation of fiscal decentralization in the municipality is generally ineffective.
This is clear from the revenue performance of the municipality. In 2009, the assembly
estimated to generate a total amount of GH5,095,453.80. Out of this amount, the
assembly was able to generate only 43.68% (GH2,225,631.88) resulting in adverse
variance of GH 2,869,821.92. In 2010, 18.25% (GH3,568,155.87) of the budgeted
amount was generated out of a total budgeted amount of GH19,555,261.00 which
resulted in an adverse variance of GH 15,858,105.13. Although there is a marginal
increase in the amount of revenue generated in 2010, this amount is still far below the
budgeted amount. The assemblys inability to meet its budget estimates makes it
dependent on the central government in fulfilling its mandate of providing services to
people at the grass-root level. This ineffectiveness in revenue generation could be as a
result of leakages in revenue generation system, low level of education on the part of
revenue collectors and tax payers, ineffective and inexperienced budget officers who
cannot make attainable budget estimates and the assembly not making good use of all
its sources of finance, especially in the area of property tax where the assembly does
not have valuers to value the numerous properties in the assembly to enable it tap
revenue from property tax. It is realized that the assembly does not prepare variance
analysis of its budgeted and actual results with regard to its revenue. This makes it
difficult for the assembly to assess its revenue performance.

5.2.3 The challenges of fiscal decentralization
With regard to budget preparation, even though the assembly is given complete power
to prepare and approve its own budgets, the assembly faces many challenges in
performing this task.
62

These challenges include; inadequate budget staff which inhibits on time budget
preparation and inadequate skills on the part of some budget staff resulting in
difficulty in making realistic and reliable budget estimates. In terms of revenue
generation, though the assembly has been given the power to generate, retain and use
its revenue there are certain challenges the assembly encounters in doing so. There is
always lack of cooperation from tax payers. Tax payers are not always willing to
honor their tax obligation simply because they fill they do not receive any benefit
from the assembly and due to lack of public sensitization on the need to pay tax. Also,
pilfering on the part of some revenue collectors is yet another challenge. Collectors
sometimes get away with some moneys generated out of tax collections as a result of
weaknesses in internal controls. Again most tax payers evade taxes in several ways
which poses another challenge to the assembly in terms of its revenue generation and
inadequate logistics for collectors to work with.

High interest rates charged by financial institutions poses a challenge to the assembly
as regards loan acquisition. Furthermore, the assembly does not have enough
collateral required by financial institutions before advancing loans to the assembly
and the borrowing power of the assembly is limited to a ceiling of GH2000 making
it sometimes difficult for the assembly to meet its borrowing requirements.

5.2.4 Remedies to the challenges of fiscal decentralization
In order to overcome the challenges the assembly faces in acquiring loans, financial
institutions should charge moderate interest on loans. Since basic interest rates are
usually fixed by the Bank of Ghana (BoG) in collaboration with the Ministry of
Finance, they should try to reduce the basic rate which will enable the banks to also
reduce the interest rates they charge on loans. Also, the borrowing ceiling of
63

GH2000 should be reviewed upwards to enable MMDAs raise sufficient funds
through loans in order to finance their budgets and also to undertake developmental
projects.

To overcome the challenges the assembly encounters in generating revenue, there
should be public sensitization on the need to pay tax. This will enlighten the public on
how their tax moneys are being used thereby motivating them to always honor their
tax obligations. Furthermore, the assembly should ensure that revenue collectors
always issue receipts to tax payers. This can be done by sensitizing the public to
always insist on receipts any time they pay taxes. Revenue collectors should as well
be provided with adequate logistics to enable them discharge their responsibilities
effectively. Also, the assembly should punish tax evaders severely in order to deter
others from perpetrating the same acts. This can be done by confiscating their goods,
taking legal actions against them, closing their shops or banning them completely
from operation by taking their operating licenses from them.

In overcoming the challenges the assembly faces in preparing its budgets, the
assembly should be given more budget staff in order to help reduce the work load that
is placed on the few budget staff. This would help reduce the pressure that is always
on the budget staff to prepare budgets on time thereby minimizing errors in the
budgets. Furthermore, the assembly should organize periodic training programmes for
its budget staff in order to help improve on their knowledge in budget preparation. In
curbing the challenges face by taxpayers in paying taxes, taxpayers should only be
taxed when they have made sales. By so doing, no tax payer would have any excuse
not to pay their taxes when they are due.

64

5.2.5 Prospects of fiscal decentralization
Despite the incomplete effectiveness of fiscal decentralization in the Wa Municipality
and other MMDAs in Ghana as a result of the numerous challenges they encounter in
carrying out their responsibilities to the fullest, all hope is not yet, as the creation of
an enabling environment through: the establishment of the Local Government Act as a
move towards transferring powers and responsibilities to MMDAs to operate
effectively, ensuring the existence of a strong national will to decentralize,
development of special-purpose some-what more neutral and high-level
mechanisms to oversee and co-ordinate decentralization and local government reform
to eliminate bureaucracy and the development of significant transfer programmes that
will allow central government to transfer substantial proportions of total central
revenues to MMDAs would provide enough breeding grounds for effective fiscal
decentralization to thrive. Furthermore, the assignment of an appropriate set of
functions to local governments through the decentralization of appropriate services
and the provision of the requisite resources to enable them provide such services is a
step in the right direction. Also, fiscal decentralization can be enhanced through the
assignment of an appropriate set of local own-source revenues to local governments.
This would enable them mobilize enough revenue to meet their budget requirements.
To add to that, despite the inadequacy of intergovernmental fiscal transfers, there is
still light at the end of the tunnel since there is still room for the central government to
improve upon such transfers.

Even though there is inadequate access of local governments to development capital,
as a result of their limited sources of revenues and insufficient intergovernmental
transfers to them, there is still room for improvement since the central government
65

can allow MMDAs more access to sufficient funds from financial institutions to
supplement their budgets.

5.3. Recommendations
Based on the findings of our study, the following recommendations have been given:
The Wa municipality like most districts in Ghana is unable to meet its revenue
and expenditure targets not because it has limited powers to operate but
because the assembly is not fully utilizing its sources of revenue like property
taxes. This study therefore suggests that the assembly should employ the
services of valuers who will value the numerous properties in the assembly to
enable it tap revenue from property tax which is aimed to be the major source
of tax revenue for the assembly.
Even though the establishment of the Local Government Act was intended to
provide an adequate enabling environment for MMMDAs to operate
effectively, it also poses some restrictions on their operations including the
borrowing ceiling of GH2000.Wetherefore recommend that this ceiling
should be reviewed upwards or possibly removed completely. This would
enable MMDAs to have access to sufficient funds for their developmental
activities.
The sources of revenue assigned to MMDAs in Ghana are also inadequate to
meet their local expenditure requirements because lucrative tax fields (for
example, income tax, sales tax, import and export duties) all belong to the
central government, while local government has access to only low yielding
taxes such as basic rates and market tolls. We therefore recommend that more
lucrative tax fields should be opened to MMDAs to ensure that appropriate set
of local own-sources of revenues are available to local governments.
66

5.4 Recommendation for further research
Since this study could not cover much on the investment aspect of fiscal
decentralization in Ghana, we recommend that further research be conducted in this
area.

5.5 Conclusion
It is evident from the analysis that MMDAs in Ghana have not been given absolute
power to operate without interference from the central government. Although the
MMDAs are allowed to borrow, this borrowing power is restricted to a ceiling of
GH2000 which is totally inadequate. The central government should therefore
consider this restriction by either eliminating it or reviewing the amount upwards to
give MMDAs the opportunity to borrow amount they think is sufficient to supplement
their budgets to be able to provide the needed services required by the local people. It
is also realized from this research that MMDAs do not have absolute power to use the
DACF at their own discretion. Since MMDAs are at the grass-root level, they are in a
position to know the needs of the people better than central government does.
Therefore, central government should give MMDAs the opportunity to use their share
of the DACF at their own discretion but monitor what the DACF is used for to ensure
transparency, probity, and accountability. Also, it can be inferred from the study that
MMDAs in Ghana have been given complete power to generate, retain and use their
own revenue. However, they face a lot of challenges in mobilizing revenue.
Sometimes taxpayers do not cooperate with revenue collectors when they go on their
rounds to collect revenue and this has reduced the amount of revenue the assemblies
can generate. Therefore, MMDAs should undertake tax education programmes to
educate taxpayers on the importance of paying taxes and the benefits thereof. The
salaries paid to the revenue collectors should be linked to the amount of revenue they
67

are able mobilize thereby enabling them to avoid pilferage and generate more revenue
for the assemblies. Furthermore, it can also be inferred from the study that MMDAs
are given complete power to prepare and approve their own budgets. However, they
face a lot of challenges in preparing their budgets some of which are inadequacy of
budget staff, inadequate skills on the part of some budget staff, and difficulty in
making realistic and reliable budget estimates. The MMDAs should be given more
qualified and competent budget staff and also MMDAs should endeavor to organize
periodic training programmes for their budget staff in order to equip them with more
skills in using statistical and economic models in making realistic and reliable budget
estimates.















68

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Ahwoi, K. (2009), The Legal Framework for Decentralization: Issues and
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University of Ghana) Uniflow publishing ltd (2003)
Ayee, J.R.A. (2004). Ghana: A Top-Down Initiative in Olowu D and Wunsch J.
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Decentralization. Boulder, CO. /London: Lynne Rienner: 125154.
Ayee, J.R.A. (1994). An Anatomy of Public Policy Implementation: The Case of
Decentralization Policies in Ghana. Avebury: Aldershot.
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Ayee, J.R.A. (2000), Decentralization and Good Governance in Ghana,
unpublished paper of May 2000 prepared for the Canadian High Commission,
Accra, Ghana.
Ayee, J.R.A. (2008a). The Balance Sheet of Decentralization in Ghana in F.
Saito (ed.) Foundations for Local Governance: Decentralization in Comparative
Perspective (Leipzig: Physica-Verlag), Chapter 11.
Bardhan, P and Mookherjee, D. 2000: Capture and governance at local and
national levels. American Economic Review90: 135139
Bardhan, P., and Mookherjee, D. (eds.). 2006. Decentralization and local
governance in developing countries: A comparative perspective. Boston: MIT
Press.
Cochrane, G. Policies for Strengthening Local Government in Developing
Countries, World Bank Staff Working Paper No. 582, World Bank, Washington,
DC, 1983.
Davoodi, H and Zou, H. 1998: Fiscal decentralization and economic growth: a
cross-country study. Journal of Urban Economics43: 244257.
De Mello, l. Jr (2000b) Fiscal decentralization and intergovernmental fiscal
relations: A cross-country analysis, World Development. Vol. 28, No. 2, pp.365-
380.
European Bank for Reconstruction and Development. 1998: Transition Report.
EBRD: London.
Guimaraes, J. P. (1997) The new federal system in the Sudan: Some main aspects
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XIII, No.1, pp.37-53.
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Jorge M. Fiscal decentralization in Asia: Challenges and opportunities.
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Housing and Planning Research, KNUST-Kumasi.
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G. Brosio (eds.), Handbook of Fiscal Federalism, 3360. Northampton, MA:
Edward Elgar Publishing.
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growth. World Development31: 15971616.
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www.localgovernment.gov.gh
www.statsghana.gov.gh









72

APPENDIX
KWAME NKRUMAH UNIVERSITY OF SCIENCE AND TECHNOLOGY
COLLEGE OF ART AND SOCIAL SCIENCES
SCHOOL OF BUSINESS

PROJECT TOPIC: CHALLENGES AND PROSPECTS OF FISCAL
DECENTRALIZATION IN GHANA: A CASE STUDY OF THE WA
MUNICIPALITY

Kindly take some time off your busy schedule to answer the following questions
where applicable. This exercise is entirely academic and information provided would
be treated confidentially and would not be used against the respondent in any way.

PROJECT QUESTIONNAIRE FOR THE GENERAL PUBLIC
1) Gender of respondent
A. Male B. Female
2) Age of respondent
A. 18-25 B. 26-35 C. 36-45 D. 46 and above
3) Level of Education
A. Basic B. Secondary
C. Tertiary D. Other (specify)
4) Occupation of respondent
A. Dealer in clothing B. Dealer in foodstuffs/food seller
C. Dealer in general provisions D. Other (specify)
5) What benefits do you get from the assembly?
A. Security B. Education and other social amenities
C. Health and Sanitation D. Other (specify)..
73

6) What are the sources of funds for the assembly?
A. Central government B. Citizens of the district
C. Both central government and citizens of the district D. No idea
7) Do you have any responsibility to pay taxes?
A. Yes B. No
8) If yes, how do you play such role?
A. By cash/cheque B. In kind
C. Communal labour D. Other (specify).
9) If no, why?
A. I dont see the benefits
B. There is no accountability for the use of the taxes we pay
C. District Assembly staff enrich themselves with the taxes we pay
D. Other (specify)..
10) Are you aware you have to take a receipt any time you pay taxes?
A. Yes B. No
11) Are you always given a receipt any time you pay taxes?
A. Yes B. No
12) Do you keep records of your activities?
A. Yes B. No
13) How are you assessed for taxes?
A. Collectors tell me any time they come
B.I always know how much to pay
C. The assembly educates me on how to determine my tax liability
D. I do not know how I am assessed

74

14) Do you feel there is equity (fairness) in the way you are being taxed?
A. Yes B. No
15) Are you aware you have to register your business with the District Assembly?
A. Yes B. No
16) Have you registered your business?
A. Yes B. No
17) If no, why?

18) Do you face any challenges in paying taxes?
A. Yes B. No
19) If yes, what are some of these challenges?
A. Time of payment not favorable B. I do not know where to pay my
tax
B. The tax amount is always too much C. Other (specify)
20) In your opinion, how can these challenges be overcome?
A. People should be taxed only when they have made sales
B. People should be informed about the places for tax payment
C. The tax system should be fair (equitable)
D. Other (specify).

END OF QUESTIONNAIRE, THANK YOU.


75

KWAME NKRUMAH UNIVERSITY OF SCIENCE AND TECHNOLOGY
COLLEGE OF ART AND SOCIAL SCIENCES
SCHOOL OF BUSINESS

PROJECT TOPIC: CHALLENGES AND PROSPECTS OF FISCAL
DECENTRALIZATION IN GHANA: A CASE STUDY OF THE WA
MUNICIPALITY

PROJECT QUESTIONNAIRE FOR THE DISTRICT ASSEMBLY STAFF

Kindly take some time off your busy schedule to answer the following questions as
applicable. This exercise is purely academic and information provided would be
treated confidentially and would not be used against the respondent in any way.

1) Gender of respondent
A. Male B. Female
2) Age of respondent
A. 18-25 B. 26-35 C. 36-45 D. 46 and above
3) Level of Education
A. Basic B. Secondary
C. Tertiary D. Other (specify)
4) Does the assembly have the power to invest surplus funds?
A. Yes B. No
5) If yes, how are such funds invested?
A. Given as loan to the general public B. Investment in agriculture
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C. Investment in fixed assets D. Other (specify)
6) Does the assembly always earn good returns on its investment?
A. Yes always B. Yes but not always C. No
7) What are some of the challenges the assembly encounter in investing surplus
funds?

8) What do you think are some of the measures to be put in place to overcome
these
challenges?........................................................................................................
...........................................................................................................................
...........................................................................................................................
9) Is the assembly allowed to borrow funds?
A. Yes B. No
10) If yes, is the assembly restricted to a certain amount?
A. If Yes (how much)B. No
11) Is the assembly always able to repay its debts as and when they fall due?
A. Yes and at the time they fall due B. Yes but not on the due date
C. Both A and B D. No
12) Does the assembly encounter any challenges in acquiring loans?
A. Yes B. No
13) If yes, what are some of these challenges?
A. Lack of/ inadequate collateral B. Unfavorable time of repayment
C. High interest rates D. Other (specify)
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14) What do you think are some of the measures to be put in place to overcome
these challenges?
A. Financial institutions should charge moderate interest on loans
B. Financial institutions should demand reasonable amount of collateral
security
C. Financial institutions should extend period of repayment of loans if
necessary
D. Other (specify)
15) Apart from borrowing, is the assembly given the power to generate its own
revenue?
A. Yes B. No
16) If yes, from which sources?
A. Special levies B. Fines
C. Interest on investments D. Other (specify)
17) How are such revenues used?
A. Retained and used by the assembly B. All is sent to central
government
C. Retain part and send part to central government C. No idea
18) Does the assembly encounter any challenges in generating revenue?
A. Yes B. No
19) If yes, what are some of these challenges?
A. Tax evasion B. Lack of corporation from tax payers
B. Pilfering on the part of revenue collectors D. Other (specify)..

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20) What do you think are some of the measures to be put in place to ensure
effective revenue generation?
A. Education of the public on the need to pay tax
B. Insists on issue of receipts to tax payers
C. Severely punishing tax evaders in order to deter others
D. Other (specify).
21) Is the assembly allowed to use its share of the District Assembly Common
Fund without any restrictions?
A. Yes B. No
22) If no, what are some of these restrictions?

23) To what extent is the assembly given the power to prepare and approve its
budgets?
A. power to prepare only B. power to prepare and approve
C .Other (specify)
24) Does the assembly always meet its budget plans?
A. Able to meet both revenue and expenditure plans
B. Able to meet only revenue plans
C. Able to meet only expenditure plans
D. Unable to meet both revenue and expenditure plans
25) Does the assembly encounter any challenges in the preparation of its
budgets?
A. Yes B. No
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26) If yes, what are some of these challenges?
A. Inadequate budget staff
B. Inadequate skills on the part of some budget staff
C. Difficulty in making budget estimates
D. Other (specify)

27) What do you think are some of the measures to be put in place to overcome
these challenge?
A. The assembly should be given more budget staff
B. Training for budget staff
C. Employment of economic and statistical models in making budget
estimates
D. Other (specify)..


END OF QUESTIONNAIRE, THANK YOU.









80

KWAME NKRUMAH UNIVERSITY OF SCIENCE AND TECHNOLOGY
COLLEGE OF ART AND SOCIAL SCIENCES
SCHOOL OF BUSINESS

PROJECT TOPIC: CHALLENGES AND PROSPECTS OF FISCAL
DECENTRALIZATION IN GHANA: A CASE STUDY OF THE WA
MUNICIPALITY

Please kindly take some time off your busy schedule to answer the following
questions as applicable. This is purely an academic exercise and information provided
would be treated confidentially and would not be used against the respondent in any
way.

PROJECT QUESTIONNAIRE FOR REVENUE COLLECTORS
1. Gender of respondent
A. Male B. Female
2. Level of education
A. Basic B. Secondary
B. Tertiary C. Other (specify)..
3. Are you taken through training on your field of work?
A. Yes B. No
4. If yes, how often?
A. Annually B. semi-annually
C. Quarterly D. other (specify)

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5. Do you face any challenges on the field?
A. Yes B. No
6. If yes, what are some of these challenges?
A. Inadequate logistics B. Lack of co-operation from taxpayers
C. Difficulty in locating unregistered businesses
D. Other (specify).
7. To whom do you report these challenges?
A. Municipal Chief Executive
B. Municipal Finance Officer
C. Municipal Coordinating Director
D. Other (specify).
8. Do they respond to these challenges when you report?
A. Yes B. No
9. If yes, how quick do they respond?
A. Immediately B. Late C. Very late
10. In your opinion, how can these challenges be overcome?
A. Public sensitization on tax payment
B. Provision of adequate logistics
C. Public sensitization on the need to register businesses
D. Other (specify)
11. How are you remunerated?
A. Monthly salary B. Commission
C. Both salary and commission D. other (specify)
12. How do you enforce payment of taxes by individuals who are not willing to
comply with tax laws?
A. Confiscation of goods/ wares B. Report them to the assembly
C. No action D. Other (specify)..