IBSER completed the project
30 November 2009
IBSER Completes Implementation of the Project Experience of Fiscal Decentralization in Slovakia for Ukraine
In late November 2009, the Institute for Budgetary and Socio-Economic Research (IBSER) completed the Experience of Fiscal Decentralization in Slovakia for Ukraine project, which IBSER was implementing in 2007-2009 with funding from the International Renaissance Foundation, and in collaboration with its Slovak partner, the M.E.S.A. 10 Center for Economic and Social Analysis.
The project goal was to develop a new system of financing for local governments to be based on the experience of European Union countries (including Slovakia), intended for raising the level of fiscal sufficiency of local governments, their autonomy, and enhancing the influence of the public on the budgeting process, including through increasing the share of local own-source revenues.
Proposals have been developed based on the project implementation results with regard to building a new system of financing for local governments, based on the experience of reforms conducted in the Republic of Slovakia.
Among other things, IBSER experts developed their proposals and identified the key principles for improving the local government financing system, which proposals have been discussed and approved by participants of the regional seminars conducted as part of the project, a study tour of Ukrainian specialists to Slovakia, and the concluding International Conference. Possible ways have been identified for improving the legislation, which regulates local taxes and fees, as well as other own-source revenues of local budgets, in particular, through introduction of a property tax, which has the highest relevance for Ukraine.
The project was implemented by phases:
- Phase І - Regional Seminars for Financial Officers
A series of subject-matter seminars involving more than 140 representatives of principal and local finance directorates of the Cherkasy, Rivne, Zhytomyr, Chernihiv, and Kyiv Oblasts, as well as of local governments were delivered in the cities of Zhytomyr, Kyiv, Chernihiv, and Ukrayinka in the period of November 4 through 7, 2008.The seminars were conducted with participation of Slovak experts who familiarized the participants with the experience of fiscal reforms in the European Union, presented the options for possible uses of this expertise in Ukraine, in particular, special features of fiscal decentralization in Slovakia, in the context of country’s European integrations, as well as the special features of generating their own financial resources by local governments in the Republic of Slovakia.
- Phase ІІ - A Study Tour by a Group of Ukrainian Experts to Slovakia
A group of representatives of the Ministry of Finance of Ukraine, Committee on Budget of the Verkhovna Rada of Ukraine, and local finance directorates went on a study tour to the Republic of Slovakia in the period of 25 July through 2 August 2009.
During this study tour, the participants had unique opportunities to familiarize themselves with the process of fiscal decentralization in Slovakia, which took place as early as 2005, as well as meet with representatives of the Government of Slovakia and discuss their experience with regard to implementing a fiscal decentralization in Ukraine. Among other things, the discussions focused on strengthening the financial base of local governments through improved administration of the payment for land (as property tax) and local taxes and fees.
Based on the findings of the Slovakia study tour, the project experts have developed their proposals, which served as the base for several legislative drafts aimed at implementing reforms in the local taxation system, which drafts have been submitted for consideration of the Ukrainian parliament. These include the Draft Law of Ukraine “On Local Taxes and Fees” (Registration No.3532), which provides, among other things, introduction of a tax on buildings and structures as a local tax, introduction of transparent administration of local taxes and fees, and other proposals developed in the course of the study tour.A range of proposals of this legislative draft have also been taken into account in other documents, including the Draft Law "On Improving the System of Local Taxes and Fees" (Registration No.4651), Law of Ukraine dated 23 June 2009, No.1540 "On Amending the Budget Code of Ukraine," in particular, with regard to categorizing the immovable property tax and the payment for land as local taxes, remitting 15% of revenues from the personal income tax into local development budgets, etc.
Implementation of the developed initiatives will underlie a new system of finance in Ukraine and improve the transparency of the budget process at the local level. Implementation of this system will contribute to the development of local democracy, development of territories, changes towards closer cooperation between the private and municipal sectors, significant changes in cooperation between the national and local governments. In addition, a new system of finance will promote a higher level of financial sufficiency of local governments, their autonomy, and increased influence of citizens on the budgeting process. In particular, an increase in the share of own-source revenues within local budgets will reflect the actual level of financial decentralization in Ukraine.
- Phase ІІІ – The Final International Conference in Kyiv with Participation of Slovak Experts
The final international conference Using the European Experience of Fiscal Decentralization in Ukraine. Legislative Foundations for Strengthening the Financial Capacity of Local Governments, which summed up the results of the above project, took place in Kyiv on 27 November 2009. The conference, organized by IBSER with representatives of the M.E.S.A. 10 Center for Economic and Social Analysis, was attended by 62 representatives from the Secretariat of the Cabinet of Ministers of Ukraine, Secretariat of the Verkhovna Rada Budget Committee, Ministry of Finance, Ministry of Economy, Principal Finance Directorates of oblast State administrations, local governments, and NGOs.During the event, the following proposals were discussed:
- implementing reform of the system of local taxes and fees and introduction of new taxes to be remitted into local budgets;
- introduction of a property tax.
The conference has laid down the following areas of improving the system of administration of local taxes and fees:
1. Reduce the number of local taxes and fees.
2. Improve the principles of administration of the remaining local taxes and fees.
3. Append the list of local taxes and fees with new ones, including the tax on buildings and structures.
Therefore, implementation of the recommendations approved by all participants of the study tour and the international conference aimed at introducing such a system of financing will make it possible to implement reform of the system of local taxes and fees towards building a more streamlined and efficiently administered system.
Project Achievements
The work implemented by IBSER in the course of this project not only made it possible to bring together the representatives of different branches of government and representatives of the public towards achieving a common goal of strengthening the financial standing of local government in Ukraine, but also initiated an active dialog between local governments, government ministries, Ukrainian and Slovak experts on the need and possible options for increasing the level of fiscal decentralization in Ukraine.
It is thanks to the approved initiatives that Ukrainian laws will be amended, which will help strengthening the financial autonomy of local governments and transparency of the budget process at the local level in Ukraine. Besides, the representatives of local governments, NGOs, expert community and citizens of Ukraine will get an opportunity to influence the budgeting process, which will improve its administration and results in the future through increased accountability of governments at all levels.
In this way, the national government will be able to implement the budget reform in a more efficient way, in particular, with regard to improving the financial base of local governments, and the local governments will significantly improve their financial capacity. For instance, implementation of the proposed legislative changes, in particular, those related to local taxes and fees and tax on property will help increase the own-source revenues of local governments 4.5 times.
Glyanec