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Sunday, 16 December 2018

Fiscal Federalism: Income Distribution in Federal Systems (1)

(Photo: Alsir Mukhtar) The RCDCS (Regional Centre for Training and Civil Society Development) organized a workshop on “Income distribution in Federal Systems”. Several papers were presented in the workshop on the different aspects of the issue and followed with very in depth discussions.

Fiscal Federalism
One of the most important papers was “Fiscal Federalism” was presented by Dr. Ali Jaragandi Al Naiem which focused on Sudan experience and who stated at the start that decentralization cannot be achieved by policed  decentralization alone because fiscal federalism is the other wing of the system. It aimed to review the development of the financial relations between the center and the states including the localities from 1951 up to 2018, including the political and legislative development in this context. The paper concluded with the proposal of a set of alternatives and choices to develop the present system to achieve a just distribution of the national financial resources acceptable to all.
Fiscal federalism evaluation in Sudan passed through Four stages governed by the political and administrative convictions of the different ruling regimes.
The first stage was by the central government to transfer ten types of taxes revenues to the local councils.
The second stage was established by the Presidential Decree No. Fifteen which was embedded in the 1998 Constitution under the title of States Support which created the States Support Fund.
The main feature of this legislation was; support the states that receive aid from the central government so that gradually can depend on their own resources; support just structures by balanced development between the different states vide transferring the central from current expenditure to development funding; laying the foundation for the states to adapt development plans based on feasibility studies to increase resources for development.
The third stage came with the act enacted by the National Assembly which established the Higher Council for Resources and cancelled the States Support Fund, the new body encompassed the Fund functions in addition the others. The new act stipulated that not less than 10 percent of the profits of the national projects be allocated to the states in which the project is allocated according a decision by the Higher Resources Council and that 10 percent of this revenue should be allocate to the localities in the targeted states. In addition to that each state should allocate 40 percent from the business tax collected to the localities while every locality will transfer 40 percent of the agricultural and livestock taxes to the state.


In fact the real resources of the Resources Fund during the period from 1997 to 2007 have the central government allocations which were increased from SDG 4 billion on 1007 to 15 percent of federal resources in 2007. Even the states considered with high resources (5 states)  were not able to meet their commitment towards the Fund except the Khartoum State for a short time. The Fund failed in attain it strategic goal of ending twenty one states from dependency on federal support and ended with all the states receiving federal assistance.  The Fund was unable to develop any investment projects with good returns in the states.
The period of the Fund and the Higher Resources Council from 1997 to 2007 was the worst period for the states which suffered from lack of resources and in particular in the payment of salaries and wages and current expenditure which resulted that the states is indebted to the employees for more than SDG: 800 billion which some still struggle to pay it.

Fourth Stage

This stage was stipulated in the 2005 Interim Constitution which established two mechanisms; a national resources fund and Allocations and Financial Resources Monitoring Commission. The constitution stipulated the functions of each organ, which made the fund the pit in which all federal resources are pooled and administrated by the Ministry of Fi9nance in behalf of the central government and the resources in this fund are those that are allocated for distribution between the different levels of governance. While the Commission operate as the executive branch of the fund according to measures formulated by a committee of experts. The constitution stated that the commission comes within the jurisdictions of the Presidency. And as so present to the presidency a detailed report on the distribution of resources to the different states and in case of a any financial defect in the fund resources the presidency take s the necessary measures to address it.
It is worth mentioning that the distribution of the resources among the states depends on many factors; the population number, agricultural needs, security education, health.
The paper ended by a set of recommendations including that the constitution should protect the independence of the commission. The commission resources should be in a separate account independent from the Ministry of Finance; and also recommended the establishment of a poverty reduction unit within the commission.
Two papers were presented on the experience of the unregulated mining and its effects on fiscal federalism and the reality and experience of local resources in East Darfur state.