This Handbook describes
benefits offered Local-level Governments (LLGs) by their new authority to raise
Head Tax. It outlines considerations
which led to the Somare Government’s decision to pass the Local-level Government Head Tax (Enabling) Act 2003. It describes decisions LLGs must make about
whether to use Head Tax to increase revenue.
Lastly, the Handbook offers a guide to writing the Act each LLG must
enact before they can collect Head Tax.
The Handbook has three
attachments. Attachment 1 is a model LLG Head Tax Act. This helps each LLG write its own Head Tax Act, with variations to suit its needs and policies. Attachment 2 describes certification
required when an Act is submitted for approval to the Minister for
Inter-government Relations. Attachment
3 is the National Government’s Local-level
Government Head Tax (Enabling) Act. This
Act defines LLGs’ right to collect Head Tax, procedures LLGs need to follow,
and where they can vary Head Tax to suit their own needs.
True self-government for
LLGs will begin when they control their own funding. Introduction of Head Tax is a first step in giving LLGs this
ability to act effectively for their people.
The Organic Law on Provincial Governments and Local-level Governments gave
more functions than funding to LLGs.
Since then LLGs have had a gap between hopes stated in District
Development Plans and the work they complete.
Inadequate revenue limits what LLGs can do for their people.
LLGs were supposed, under
the Organic Law, to have authority
to impose taxes and fees. Government
Departments were supposed to prepare ‘enabling Acts’ for adoption by LLGs to
authorise them to raise their own taxes.
This has not happened.
Funding for LLGs from
National and Provincial Governments has been unreliable. As National or Provincial Government face
problems in funding, they cut funding of LLGs.
LLGs find their limited revenue goes on salaries and allowances, rather
than services and maintenance of infrastructure.
External revenue has created
irresponsible LLGs. LLG Management
Reports show up to 60% of LLG income going on salaries and allowances of
Councillors.
Discussions with villagers
show external revenue does not produce accountability. Often, external revenue is (mis)appropriated
for private rather than public benefit.
Present taxation puts too
much weight on a few taxpayers. Just
over 100,000 taxpayers have carried the burden for 5 million Papua New
Guineans. The new system will allow all
Papua New Guineans to take responsibility for their schools, their aid posts,
their roads and their government.
Head Tax offers LLGs
advantages over other taxes.
LLGs and district
administrations have limited staff.
Head Tax is simple to apply, as the taxable unit (people) is easily
ascertained.
Head Tax gives LLGs a fixed
revenue or fixed supply of community work which does not vary with level of income.
It makes budgets and planning straightforward.
Head Tax helps taxpayers
understand links between their taxes, performance of LLGs, and political
responsibility and accountability.
A well-kept secret is that
some LLGs have collected Head Tax for the last eight years. They did it ‘unofficially’. Taxpayers paid Head Tax because they saw
better services and infrastructure. No
taxpayer challenged the Tax in the courts.
These LLG areas with the
voluntary Head Tax today have some of the best schools, health system and
transport infrastructure in Papua New Guinea.
Taxpayers found Head Tax a
good investment. Use of Head Tax to
maintain transport infrastructure has allowed villagers to market crops.
Some villagers will resist
Head Tax. Some Councillors will be
afraid to impose it. This is a matter
for villagers and Councillors. Nonetheless,
experience shows that a tax, such as Head Tax, is necessary for good health and
education systems, and the transport required for developing commerce and
industry.
Revenue from Head Tax can
only meet some costs of roads, schools and aid posts.
Head Tax will solve some problems, not all.
Some villagers may believe
that Head Tax will lead to large increase in government-supplied goods and
services.
Villagers must be told from the beginning about what can be done and
what cannot be done with revenue from Head Tax.
LLGs should consider
allocating most or all the Head Tax collected from any ward to the ward to be
spent according to the wishes of the residents.
This had three benefits:
1.
ward
residents learn to link taxation and development;
2.
development
is spread across the council area; and
3.
tax
collection becomes easier.
LLGs will need
to:
1.
make
clear the revenue involved (quite small) and limited amount of work which can
be done: cleaning markets, clearing roads, etc.
2.
ensure
there are procedures to receive, manage and account for tax proceeds to the
wards. Councillors, without support,
may be open to allegations of misuse of ward funds.
LLGs have spent much of
their revenue on Councillors’ salaries and allowances and administration
overheads. This has led to little spent
on projects and services.
Councils to build
credibility among constituents should ensure Head Tax results in benefits
people see and appreciate.
Councillors may help collect
taxes and plan and oversee community work.
They may, however, see themselves as representatives of the people
rather than agents of the LLG.
LLGs should define their
expectations of their member Councillors and guide and support them. The Councillors should be in a position,
where they may show that their actions bring real benefits.
Village court magistrates,
councilors and police must support action against defaulters. If they do not, defaulters set a pattern
followed by previously law-abiding taxpayers.
LLGs must inform
magistrates, councilors and police on the importance of the Head Tax, and need
for their support.
LLGs must inform communities
on penalties for defaulters.
The National Economic and Fiscal Commission is examining distribution
of funding between the three levels of Government. Their report will be ready in 2004. That Report will recommend revenue, within available resources,
to match functions and funding at national, provincial and local levels.
1.
Decision to Collect Head Tax. Head Tax is an opportunity for each LLG. No LLG
is forced to collect Head Tax. Each LLG
should consider:
§
approximate
income to be raised by Head Tax (K20.00 multiplied by about half the residents
of the LLG area), and consider services and infrastructure programs the LLG
could offer;
§
willingness
of residents to contribute Head Tax or community work;
§
resources
for collecting the tax, and administering revenue; and
§
resources
for planning community projects, and overseeing community work.
2.
Decision to Collect
Corporate Head Tax. Corporate bodies may offer
more tax. The corporate bodies
operating in any area may be hard to identify and harder to compel to pay the
tax. LLGs should weigh costs and
benefits of including Corporate Head Tax.
3.
Decision on Community Work
Projects. LLGs need to decide who will design and
supervise community work projects.
4.
Appointment of Collector of
Head Taxes, and Assistant Collectors of Head Taxes. Normally the Clerk of the LLG will be Collector of Taxes. Collection of taxes should be by Assistant
Collectors of Head Taxes who live within the communities. This is because outsiders find it difficult
to collect Head Tax. In earlier days,
reluctant taxpayers ‘took to the bush’ on tax collection days. This led to high costs in collecting Head
Tax.
Efficient collection of Head Tax depends on keeping
an accurate and up-to-date Register of Tax Payers. Head Tax liability is linked to minimum age of taxpayers and how
long they have lived in the LLG area.
Problems arise where many villagers live outside
their village. Where labourers come
into the LLG area or settlements have a large visiting population, there may
also be difficulties.
LLGs must give clear guidelines on registering
mobile parts of the population.
LLGs should consult their District Administrator on
terms and conditions of employment of Assistant Collectors of Head Tax as
casual staff.
5.
Head Tax and the Budget. Expected revenue from Head Tax should be included in the
Local-level Government budget. Ward
Development Committees may prioritise projects and services may be funded
through the LLG Annual Budgets.
Each LLG which wishes to collect Head Tax will have
to enact its own Head Tax Act. These notes will help you draft your LLG Head Tax Act, using the Model Act
(Attachment 1). References are to the
sections in the Model Act, and to the Enabling
Act (Attachment 3).
Attachment
1. Model Act
Heads of LLGs should note that these Notes on
Drafting the LLG Head Act, together with the Model Act, remove the need for
Notice of Local-level Laws required by s 40 of the Organic Law. However,
you should submit your LLG Head Tax Act
to the Minister for Inter-Government Relations, Sir Peter Barter, for approval,
as required by s141 Organic Law.
Attachment 2. Certification of Legislation
These
outline the Certification required in order to secure approval of the Act. Certificates 1 and 2 should be filled in and
submitted with the Act to the Minister for Inter-government Relations. Certificate 3 is a form of approval for the
Minister for Inter-government Relations to certify approval of the Head Tax.