FINANCING SUBCENTRAL GOVERNMENTS IN TURKEY

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FINANCING SUB-CENTRAL GOVERNMENTS IN TURKEY

• THE BALANCE BETWEEN TAXES AND GRANTS

Ilhan KARAYILAN (ikarayilan_at_gelirler.gov.tr) Presi
dency Of Revenue Administration Head of
Group OECD Network on Fiscal Relations across
Levels of Government Vienna-30.05.2008
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THE STRUCTURE OF SCGs IN TURKEY

• The administrations or associations
• established by them
• Bounded to them
• Or
• Which they are being members of

The number of municipalities is going to be 2079
by March 2009.
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PROVINCIAL LOCAL GOVERNMENTS
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THE REVENUES OF SCGs

• Their own revenues
• Tax shares
• Grants (transfers) made by CG
• Debts

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REVENUES OF MUNICIPALITIES

• Own Revenues
• Taxes, duties, fees and contribution rates
• Revenues from sales, rents of movables or
  immovables
• Wages for services
• Revenues from interest and penalties
• Revenues from enterprises, partnerships and
  activities
• Other revenues

Tax Shares
Grants
Own Revenues

• Tax Shares
• 6 general budget tax revenues is distributed
  among municipalities according to the population
  criteria

• Grants
• Payments made by general and special budgeted
  administrations
• There is no legislation about the distribution of
  grants.
• There can be both conditional and non-conditional
  grants
• The aim of the grants are
• funding of SCG services,
• the subsidization of SCG services,
• the equalisation of fiscal disparities

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REVENUES OF METROPOLITAN MUNICIPALITIES

• Own Revenues
• Taxes, duties, fees and contribution rates
• Revenues from sales, rents of movables or
  immovables
• Wages for services
• Revenues from interest and penalties
• Revenues from enterprises, partnerships and
  activities

Tax Shares
Grants
Own Revenues

• Tax Shares
• The tax shares determined by the council of
  ministers
• 5 of the general budget taxes that are collected
  within the municipality and 75 of this share is
  directly transferred to the municipality, 25 of
  this share is redistributed among all
  metropolitan municipalities according to
  population criteria after being collected under a
  pool.
• 50 of the entertainment taxes collected within
  the metropolitan municipality

• Grants
• Payments made by general and special budgeted
  administrations
• There is no legislation about the distribution of
  grants
• There can be both conditional and non-conditional
  grants

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REVENUES OF PROVINCIAL LOCAL GOVERNMENTS

• Own Revenues
• Taxes, duties, fees and contribution rates
• Revenues from sales, rents of movables or
  immovables
• Wages for services
• Revenues from interest and penalties
• Revenues from enterprises, partnerships and
  activities
• Other revenues

Tax Shares
Grants
Own Revenues

• Tax Shares
• 1.12 general budget tax revenues is distributed
  among provincial local governments according to
  the population criteria

• Grants
• Payments made by general and special budgeted
  administrations
• There is no legislation about the distribution of
  grants
• Decided politically

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REVENUES OF VILLAGES

• Grants from central government, provincial local
  governments and from the profit of Bank of
  Provinces.
• Collected amount from the villagers for the
  special works that should be done within the
  borders of the village.
• The works for the village that are done by the
  villagers collectively. The amount of this work
  is evaluated by the price of labour.
• Duties, fees and penalties

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AUTONOMY ON TAX REVENUES

• According to the Constitution the authority to
  impose a tax, annul a tax or change in a tax, are
  given to the CG in Turkey. And these could be
  done only by laws. In addition to shares given
  from CG revenues, some taxes, such as
  communication tax, property tax, are directly
  collected by SCGs. But SCGs do not have authority
  to determine rates or make any changes on these
  taxes. Ex Property tax, 0,1 for dwelling and
  land.
• Also, SCGs have authority to identify taxpayer
  and assess tax liabilities, to collect taxes, or
  to engage in sound financial management for those
  taxes which are delegated to them.

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FACTORS IN TAX SHARING FORMULA

• There are three factors in tax sharing formula
• population criteria
• Municipality type
• The distribution rate determined by law.

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INTERGOVERNMENTAL TRANSFERS (GRANTS)

• Allowance in the Budget of MoF
• There is an allowance in the budget of Ministry
  of Finance in order to be distributed to the
  municipalities.
• They are non-earmarked
• Its amount is determined every year by the
  Budget Law
• It is regular since it is allocated to SCGs every
  year.
• Since, it is determined by Budget Law it is
  mandatory.

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INTERGOVERNMENTAL TRANSFERS (GRANTS)
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INTERGOVERNMENTAL TRANSFERS (GRANTS)

• Grants Paid By Various Ministries
• Determined politically
• Non-continuous grants
• They are irregular
• Generally earmarked.
• Non-mandatory

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IRREGULAR GRANTS OF PROVINCIAL LOCAL GOVERNMENTS

• Grants for the construction and expenses of
  schools
• Grants for the rehabilitation of animals
• Money and device grants for the drinking water of
  provinces and villages
• Grants for the construction of internal roads
• Grants for the construction, maintenance of the
  roads and drinking water of the villages
• Grants for the provinces which are being among
  the regions that has priority for development
• Grants for infrastructure aimed at tourism
• Grants for cultural activities
• Grants for emergency cases
• Grants made from the budget of Sports Directorate

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IRREGULAR GRANTS OF MUNICIPALITIES AND
METROPOLITAN MUNICIPALITIES

• Grants made by Ministry of Internal Affairs
• Grants made by Ministry of Public Works and
  Settlement
• Grants made by Ministry of Tourism and Cultural
  Affairs for the maintenance of cultural assets
  and for the local, national and international
  activities
• Grants made by Ministry of Sports Affairs
• Grants made for emergency by the Ministry of
  Environmental Affairs, Total Settlement
  Administration and State Planning Organization.

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CONSOLIDATED OPERATIONS OF LOCAL GOVERNMENTS
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CONSOLIDATED OPERATIONS OF LOCAL GOVERNMENTS
(PERCENTAGE SHARE IN GNP)
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Own revenues are including tax revenues
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2006-2007 SCGs BUDGET GRANT REVENUES
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CHALLENGES

• The legislation on the revenues of SCG is
  complicated and dispersed.
• The grants given by various administrations
  depending on the projects causes inequality among
  the SCGs revenues. This issue is damaging the
  horizontal equalization.
• Current tax sharing system aims only vertical
  equalization and the distribution is only
  depending on the population criteria which not
  sufficient for equalization.

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STEPS FOR SOLUTIONS

• Improving Statistical Information Gap
• The challenges on information gap is being
  solved with the Public Fiscal Administration and
  Control Law (PFACL 2003). According to that law
  the fiscal statistics of SCGs should be sent to
  Ministry of Finance and Ministry of Finance
  should declare these statistics monthly after
  consolidating these statistics.
• Since, 2006, MoF has been consolidating and
  publishing SCGs statistics quarterly.

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STEPS FOR SOLUTIONS

• New law is being discussed about the revenues of
  SCGs over the last 3 years.
• The legislation on the revenues is planned to be
  united.
• Besides population criteria there are 3 more
  criteria's are considered to be implemented in
  the tax sharing system. These are
• The size of the province
• Development index
• The population of rural area in the provinces
• GDP per person

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THANKS FOR YOUR ATTENTION