Final OSR Viability Assessment for Zambia Local Impact Governance Activity

The program's objective is to support subnational governments in improving their revenue collection and resource utilization. A sub-national revenue generation assessment was conducted in April 2021 to evaluate the factors affecting OSR collection and provide recommendations for improvement. The assessment covered 18 district councils, with 10 located in Central Province and 8 in Muchinga Province. To ensure a structured assessment, a team from Local Impact designed an assessment tool, which was self-administered. The tool's design was informed by a literature review, the results of which were shared with USAID in April 2021. Additionally, two assessment tools were developed: one for the Ministry of Local Government (MLG) and another for the Zambia Revenue Authority (ZRA). The MLG tool was self-administered and sought to obtain the ministry's perspective on OSR mobilization. The assessment aimed to identify the strengths and weaknesses of the current OSR arrangements in district councils. It also sought to provide recommendations for improving OSR collection and resource utilization. The findings of the assessment will inform project design and identify points of entry for future initiatives. The assessment's results will be used to support the Government of the Republic of Zambia (GRZ) in its efforts to improve OSR generation and enhance local governance. Decentralization and services delivery in Zambia have been ongoing efforts since the 1990s. The GRZ has implemented various policies and programs to strengthen decentralization, including the Decentralization Implementation Plan (DIP). However, challenges persist in the implementation of decentralization, including inadequate capacity and resources at the local government level. The Local Impact Governance Activity aims to address these challenges and support the GRZ in its efforts to improve OSR generation and local governance. The assessment identified several key pieces of legislation that govern OSR mobilization in Zambia. These include the Local Government Act, the Local Government Equalisation Fund Act, and the Tax Administration Act. The assessment also highlighted the importance of collaboration between district councils and other agencies, such as the Zambia Revenue Authority (ZRA) and the Ministry of Local Government (MLG). Effective collaboration is crucial for improving OSR collection and resource utilization. District councils' arrangements for administering OSR were also assessed. The assessment found that registration of tax and other payers is a critical step in OSR mobilization. However, the assessment also identified challenges in the registration process, including inadequate capacity and resources at the local government level. The assessment recommended that district councils improve their registration processes and enhance their capacity to administer OSR. The assessment also evaluated the performance of district councils in OSR mobilization. The results showed that major sources of revenue for district councils include property rates, market rates, and other local taxes. However, the assessment found that LGAs' self-sufficiency is a concern, with many councils relying heavily on external funding. The assessment recommended that district councils improve their revenue collection and resource utilization to enhance their self-sufficiency. The assessment identified several issues affecting OSR mobilization in district councils, including weaknesses and conflicts in the legal framework, inadequate OSR administration systems, and a substantial stock of revenue arrears. The assessment also found that councils are not maximizing revenue from property rates and that low tax morale is a concern. The assessment recommended that district councils address these issues and improve their OSR administration systems to enhance revenue collection and resource utilization. A matrix of prioritized interventions to enhance OSR was proposed as a way forward. The matrix identified key areas for improvement, including strengthening the legal framework, improving OSR administration systems, and enhancing revenue collection and resource utilization. The assessment recommended that district councils and other stakeholders work together to implement these interventions and improve OSR mobilization in Zambia.