Need for Continued Revenue Mobilization Effort

The FY2004/05 operating budget provides for a substantial increase in outlays to $609 million (equivalent to 11 percent of GDP). This reflects the substantive needs in education, social protection, security, and capacity building for public services, part of which was carried over from FY2003/04.

Domestic revenue is budgeted to reach $300 million,⁹ a 50-percent increase from the previous year, leaving $309 million to be covered by foreign assistance and carry-over from funds in the government’s bank balances. Meeting this ambitious target will require full implementation of planned customs and tax reforms, and considerable progress in tax collection, particularly in the provinces. In March 2004, the use of market exchange rates in customs valuation and a new streamlined tariff structure came into effect. A package of new revenue measures was also enacted by early 2004, including a final wage withholding tax on higher-income employees, a streamlined business establishment tax, and a limited range of consumption taxes on services such as telecommunications, air travel, hotels and restaurants. The most immediate concern is that tax holidays and concession arrangements have largely eroded the tax base. The Cabinet has passed a resolution to reexamine existing tax concessions and holidays and redraft legislation to preclude further erosion in the tax base. The government’s medium-term objective is to achieve self-sufficiency in the operating budget by 2012.¹⁰

In the area of fiscal management, major achievements to date include: (a) introduction of a computerized financial management information system for expenditure recording, payment processing, and financial reporting; (b) assignment of fiscal advisors to provincial offices of the Ministry of Finance (MOF); (c) evolution of the budget process from a MOF-led top-down approach to one that is driven by the ministries; and (d) consolidation of government bank accounts to strengthen treasury control over cash flows.¹¹ However, progress in fiscal management in the provinces is still slow.

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