GOLD Report I - UCLG

ASIA-PACIFIC68United Cities and Local GovernmentsProperty taxation is by far the major sourceof local taxation; in Japan it accounts for46.2% of own tax revenues (before the“Trinity Reform”); in Australia thisaccounts for 100% of own-revenue and inNew Zealand for 91% of own-revenue. Inboth countries, as well as in China, localgovernments also have discretion overthe rate of property taxation whereaselsewhere this tends to be determined bycentral or state government. In somecountries, business (or enterprise) taxationis also a major source of own-revenue.Municipalities throughout the regionalso collect taxes on hotels, restaurantsand places of entertainment. Some localtaxes are peculiar to a specific country.For example, city governments in Japanimpose an urban planning tax, Pakistanimunicipalities impose health and educationtaxes and Chinese municipalitiesIdeally, the financial resources at the disposal of a localgovernment – whether from its own sources 3 or from grantsand transfers– should be sufficient to cover all servicesthat it is mandated to deliverimpose collective enterprise and agriculturaltaxes. In Indonesia since 2004, municipalitiesmay impose a tax on surfacewater. Together with the existing local taxon groundwater, this authority is part ofthe government’s effort to curb environmentaldamage from over-exploitation ofwater resources.In China, Indonesia and Vietnam, theproceeds of some locally collected taxesare shared with higher tiers of government.In China, revenue from personalincome tax, product tax, business taxand joint enterprise tax are all sharedbetween central and local government. InVietnam, local governments have notaxing powers at all. Instead, they sharewith central government the proceedsfrom VAT, corporate income tax, incometax on high-income earners, special consumptiontax on domestic goods and services,and gasoline and oil tax. Other taxrevenues are exclusively assigned tothem, namely land and housing taxes,natural resource taxes (excluding petroleum),license tax and land use rightstransfer tax. In Indonesia, local governmentsshare the proceeds of taxes onland and property, and on motorizedvehicles and fuel with provincial government.Many municipalities also levy userfees and charges that comprise a minorpart, typically less than 10%, of theirtotal own-source revenues.While local governments all have their owntax sources, the degree of fiscal autonomyalso varies considerably between countries.The more developed countries, suchas New Zealand and Australia generate asubstantial share of their revenues locallyand are hence less reliant on intergovernmentalfiscal transfers. The share of grantsin total local government revenue hasfallen in both Australia and New Zealand inrecent years - from 23% in the 1980s to16% in the late 1990s in Australia andfrom 18% to 10% over the same period inNew Zealand (OECD 2001). In Japan thelocal finance reform (“Trinity Reform”)2005-2007 replaces targeted subsidies bytax revenues (transfer from the nationalpersonal income tax upon the individualinhabitant tax, however for a lower expectedyield) and the global tax grant, untilnow a major equalizing transfer from centralbudget, is being reduced drastically.By contrast, in lower-income countries ofthe region such as India, Indonesia, Pakistanand Thailand, local governments (outsidethe major urban centers) generate amuch smaller share of their total revenuesfrom local tax sources (typically 10-30%)and hence are heavily reliant on centraltransfers and grants. In Thailand, accordingto the 1999 Decentralization Plan andProcedures Act, local governments were tobe allocated at least 20% of the nationalgovernment budget by fiscal year 2001