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Tetovo and Brvenica joint administration of local taxes and fees

From Municipal Cooperation

Tetovo and Brvenica joint administration of local taxes and fees
Service Areas: Administrative Services and Tasks
Country: Macedonia
Municipalities: Tetovo, Brvenica
Contact persons: Abdula Musai, Ibrahim Ajdari
Legal form: Contractual
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Coordinates: 42° 0' 8" N, 20° 58' 44" E

Description of the problem/need for IMC

IMC is due to the lack of capacity of the Municipality of Brvenica in the administration of local tax and fees, specifically:

  • the lack of professional personnel in the Real Estate Commission, responsible for contracts, preparation and issuance of property tax bills, and inheritance and communal tax bills and tax accounting;
  • the lack of technical and spatial conditions to perform these above administrative tasks;
  • an outdated database (the real estate registry for the territory of Municipality of Brvenica) on property taxpayers.

The main aim of the IMC is to compensate for the lack of capacity of the Municipality of Brvenica in the administration and collection of local taxes and fees.

Description of the IMC practice

The legal basis for the cooperation is the agreement for the provision of services in local taxes and fees administration. The Municipality of Tetovo provides intellectual services to the Municipality of Brvenica on local taxes and fees administration by: preparing and issuing property tax bills, and inheritance and communal tax bills, as well as tax accounting. The seat of the Tax Administration Unit is located in the Municipality of Tetovo as a separate organizational unit of the Finance Department. There are five local officers involved in the IMC, who are employed in the Tax Administration Unit: the Head of the Unit, the Tax Registration Adviser, the Taxes and Municipal Revenues Senior Adviser, the Taxes and Communal Fees Adviser and the Enforced Tax Collection, Fines and Interest Adviser. The Tax Administration Unit has five employees (associates and independent officers).

Financing of the IMC activity

The compensation for the delivered services is MKD2 per capita of the total number of citizens of the Municipality of Brvenica, for total of MKD32,000 (about EUR500) monthly. The amount is paid against an invoice prepared and sent by the Municipality of Tetovo. This municipality finances the activities of the Tax Administration Unit with its own resources and the reimbursement fee from the Municipality of Brvenica. The costs include: office space, services, office procurement, computers, equipment and operational expenses, including the employee salaries. The basic sustainability factors are the updated taxpayers’ database of the Municipality of Brvenica and timely payment of the service fees by the Municipality of Brvenica. As concerns accountability to citizens, the Municipality of Tetovo Finance Department prepares the quarterly report and the annual account and report on budget execution, which is publicly available. The Municipality of Brvenica prepares the same documents. These documents are reviewed and adopted by the Councils of both municipalities.

Monitoring and evaluation

The Municipality of Brvenica pays for the services received against the invoice received from the Municipality of Tetovo which has specifications attached on the delivered services, signed and sealed by the service provider (Municipality of Tetovo) and endorsed by the service beneficiary. The performance of the Tetovo Tax Administration Unit is regularly audited by the Internal Audit. The deadline for service provision is established in separate requests for service delivery issued by the Municipality of Brvenica. The service contract specifically provides that the quality of the delivered services must match the established criteria of the legislation and by-laws, as well as other regulations on local taxes and fees. The Municipality of Brvenica accepts the generated data (property register, communal taxpayers’ database, and other databases including tax accounting) after checking their quality and receiving the official records signed by both municipalities. The Municipality of Brvenica can file a written complaint on the quality of delivered services by the Municipality of Tetovo with a mutually determined deadline.

Establishment of the IMC practice

The initiative for the IMC was a common idea of the municipalities. The initial steps included:

  1. consultations between the mayors;
  2. preparation of the initiative for establishing the IMC;
  3. preparation and implementation of the Activity Plan for the local media coverage of the initiative to inform stakeholders;
  4. comprehensive registration of the taxpayers’ property on the territory of the Municipality of Brvenica for a qualitative and complete update of the property register through the following activities:
    1. preparation of a methodology for a complete update of the Taxpayers’ Property Register on the territory of the Municipality of Brvenica;
    2. preparation and implementation of a promotional campaign supporting the process of taxpayers’ registration to inform and educate citizens (promotional materials printed and distributed, information published in the media, and meetings held with journalists);
    3. establishment of commissions on taxpayer registration in the Municipality of Brvenica;
    4. development of curriculum and materials for tax administration training;
    5. conducting of a three-day training on taxpayers registration with members of the taxpayers registration commissions, civil servants and mayors of both municipalities;
    6. implementation of taxpayers’ property registration in the Municipality of Brvenica for 3,700 taxpayers;
    7. installation of tax administration client software;
    8. production of video material to raise citizens’ awareness on the payment of the local taxes and fees collection;
    9. establishment and ownership of a wide area network (WAN) between the municipalities, which resulted in unlimited and fast flow of information between them.
  5. As a final step, the legal units of the municipalities prepared a Draft Agreement for IMC on local tax and fee administration, signed by the mayors on 20 October 2008.

There are five characteristic phases of the establishment of the IMC:

  1. Consultations between the mayors and initial formulation of the initiative;
  2. Raising awareness of the local stakeholders on the initiative, including the Councils of both Municipalities;
  3. Updating of the Taxpayers’ Property Register on the territory of the Municipality of Brvenica;
  4. Preparation of an agreement;
  5. Signing of the Agreement.

It should be noted that the political affiliation positively influenced the establishment of the IMC. Assistance from UNDP was requested in the process of establishing the IMC, which it provided, particularly in the preparation of:

  • a methodology for updating the Taxpayers’ Property Register in the Municipality of Brvenica;
  • a promotional campaign for informing and educating citizens for their support the taxpayers’ registration process;
  • development of curriculum and materials for tax administration training;
  • the tax administration client software;
  • technical solutions and establishment of WAN between the municipalities.

The IMC was faced with several difficulties during the establishment process, the most important of which are: lack of financial resources in the Municipality of Brvenica for updating the tax register and for establishing the WAN; setbacks with updating the database (unknown personal identification numbers; the Public Revenue Office and the Ministry of Interior have not yet submitted them to the Municipality); still incomplete data on taxpayers; and lack of data from the Central Government Register on the new enterprises.

The most important success factors in the establishment of the IMC are:

  • the political will of the municipal bodies in establishing of the IMC;
  • a skilled administration, trained in their specific areas;
  • continuous promotion of the benefits from the IMC.


Benefits and shortcoming of the IMC practice

Benefits

The main benefits for the partner municipalities are:

  • greater citizen awareness of the need to pay local taxes and fees as a contribution to the development of the municipalities; and
  • direct experience of officers involved in updating the taxpayer database and local taxes and fees administration.

In addition, the main benefits for the Municipality of Brvenica are the reduced expenditures, i.e. lower costs for service delivery. In general, there is increased efficiency in the preparation and delivery of the services.

From the citizens’ perspective, the main benefit is that the administration of the Municipality of Brvenica delivers quality services for the legal entities and citizens.

The Municipality of Brvenica pays indemnification of about EUR6,000 annually to the Municipality of Tetovo, but saves on financial resources for the salaries and contributions for at least three persons, which amount to approximately EUR30,000 annually. Therefore, the total savings are approximately EUR24,000 annually; US$50,000, as initial costs for establishing of the IMC have been covered by UNDP technical assistance.

In terms of the initial costs to establish the IMC, they have been covered by the savings from the 18th month of IMC operations.

Shortcomings

To date, no shortcomings of the established form of the IMC have been identified either by the partner municipalities or by citizens.

Future plans for the development of the IMC practice

At present, no consideration has been given to expanding the area of cooperation between the two Municipalities, except for the possible use of the server in the Municipality of Tetovo by the Municipality of Brvenica, for publishing the website. No considerations have been given to expanding cooperation with other municipalities or converting to another legal form.

Main lessons learned on how to establish IMC and make it a success

  • The political will must be present for cooperation between the bodies of both municipalities, including the municipal administrations.
  • Support must be provided by the Councils in addition to the main support by the stakeholders.
  • More precise taxpayers’ data is needed.
  • Timely and precise budgeting for the financial resources is essential for covering expenditures related to the preparation and provision of the service and updating the databases.
  • This form of IMC is suitable for implementation between one urban and one or more rural municipalities.

Both municipalities consider that the established practice could be replicated in other municipalities.

Both municipalities recommend that the Central Government should pass the Law on Inter-Municipal Cooperation at its earliest convenience, and the Association of the Units of Local Governments of Macedonia (ZELS) should assist the rural municipalities by illustrating the modalities for establishing IMC.

Readiness to support other municipalities to establish IMC

Both municipalities are willing to support other municipalities to establish identical IMC by sharing knowledge and experiences, and making available all relevant documentation.

Acknowledgment

The information about this practice was collected and presented by Toni Popovski.