A System for the determination of the Division of the Federal Subsidy and Joint Revenues Proclamation No.1250/2021

FEDERAL NEGARIT GAZETTE OF THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

27th Year No.29

ADDIS ABABA, 2nd July, 2021

Proclamation No. 1250-2021

A System for the determination of the Division  of the Federal Subsidy and Joint Revenues Proclamation   

PROCLAMATION NO. 1250/2021

A PROCLAMATION ISSUED TO PROVIDE A SYSTEM FOR THE DETERMINATION OF THE DIVISION OF FEDERAL SUBSIDIES AND JOINT REVENUES

WHEREAS, the House of the Federation of Federal democratic Republic of Ethiopia is mandated by the Constitution and other specific laws to determine the division of revenues derived from joint Federal and State tax sources, and the subsidies that the Federal Government may provide to the States as well as to determine the formula for the distribution of subsidy based on study;

WHEREAS, as it appears to date, since the system of the division of grants and joint revenues lacks uniformity and integration, it has been found necessary to put in place and implement a comprehensive system so that it may be possible to close the gaps which have come to be observed from time to time with respect to equity and effectiveness of the allocation thereof;

WHEREAS, it is found vital and appropriate to make the process of the division more transparent, fair and accountable;

NOW, THEREFORE, in accordance with Article 55(1) of the Constitution of the Federal Democratic Republic of Ethiopia, it is hereby proclaimed as follows.

PART ONE GENERAL PROVISIONS

1.         Short Title

This Proclamation may be cited as “A System for the determination of the Division of the Federal Subsidy and Joint Revenues Proclamation No.1250/2021”.

2.         Definition

In this proclamation, unless the context otherwise requires:

1/ ”Constitution” shall mean the Constitution of the Federal Democratic Republic of Ethiopia enacted in 1995;

2/ “House” shall mean the House of Federation established as per Article 53 of the Constitution;

3/ „Regions‟ or „Regional States‟ shall mean members of the Federation as are recognized under the Constitution of Federal Democratic Republic of Ethiopia; where appropriate it may include Addis Ababa and Dire Dawa to attain the objective of this proclamation;

 4/ “Secretariat” shall mean the Federal Democratic Republic of Ethiopia House of Federation Secretariat;

5/ “Coordinating Committee” shall mean the Committee established by the House and in which the Speaker and the Deputy Speaker of the House as well as the Chair-Persons, Deputy Chair-Persons and secretaries of each and every Standing Committee;

6/ “Speaker” shall mean the Speaker of the House;

7/ “Subsidy” shall mean the budget support which the Federal Government grants to the Regional States in accordance with Article 94 Sub-Article (2) of the Constitution;

8/ “Joint Revenues” shall mean those types of revenues allocated as being „concurrent‟ pursuant to Article 98 of the Constitution as well as through the joint session of the House of the Peoples Representatives of the Federal Democratic Republic of Ethiopia and the House as per Article 99 of the Constitution;

9/ “Formula” shall mean the calculation capable of showing the share of the Regional States at the time of distributing the subsidy and that of both the Federal Government and the Regional States while distributing joint revenues, as the case may be;

10/ “Data-Generating Institutions” shall mean those public institutions established for the purpose of gathering, compiling and organizing a variety of socio-economic data to be disseminated for the use of consumers;

11/ “Potential Revenue Capacity” shall mean that amount of revenue which both the Federal Government and the Regional States may be able to collect on an average effort pursuant to the taxing and fiscal powers vested in them by the Constitution;

12/ “Expenditure Need” shall mean that amount of expenditure which either the Federal Government or the Regional States requires to provide public service of comparable standards pursuant to the powers and duties vested in them by the Constitution;

13/ Any expression in the masculine gender includes the feminine.

3.         Scope of Application

This Proclamation shall be applicable to the subsidy which the Federal Government grants to the Regional States and the revenues identified as joint or concurrent for both the Federal and Regional States.

PART TWO FEDERAL SUBSIDY

4.         Types of Subsidy

1/ The subsidy which the Federal Government grants to the Regional States according to the Constitution shall be:

a)         General purpose; and

b)         Specific purpose.

5.         General Purpose Subsidy

1/ General-purpose subsidy is transfer provided as general budget support, with no strings attached and based on the priority of current situation of the Regions.

2/ The main objective of this subsidy shall be to equalize the fiscal capacities of the Regional States so as to provide comparable level of public services pursuant to the powers and duties entrusted to them by the Constitution.

6.         Principles for the Division of the General Purpose Subsidy

1/ The general-purpose subsidy shall be allocated among Regional States in compliance with the fundamental principles indicated here below:

a)         Ensuring equity, including gender equity, by equalizing the fiscal needs and capacities of the Regional States;

b)         Respecting the autonomy of the Regional States in setting priorities and utilizing the budget;

c)         Promoting revenue-raising efforts and effective budget utilization;

d)         Ensuring predictability of the Regional States‟ shares from the transfer permitting the development of medium and long term planning;

e)         Pursuing a transparent, participatory and easily understandable procedure;

f)         Grounding on the expenditure responsibilities and revenue-raising powers of Regional States;

g)         Being founded on concrete and reliable data;

h)         Neutrality from the influence of Regional policy and strategic behaviors.

3/ The distribution of the general-purpose subsidy shall be carried out having due consideration to any other forms of budgetary support which the Federal Government grants to the Regional States.

7.         Criteria for the Distribution of Subsidy

The criteria to be used for the distribution of the general-purpose subsidy pursuant to this proclamation shall be the following:

1/ Expenditure needs of the Regional States and;

2/ Potential revenue-raising capacity.

8.         Duration of the General Purpose Subsidy

Any formula in which the general-purpose subsidy is distributed may be revised once in 5 (five) years; provided, however, that this stipulation shall not have effect to constrain the updating of some data in less than the period prescribed hereof.

9.         Specific Purpose Subsidy

1/ A specific purpose subsidy is a conditional transfer intended to provide incentives for Regional States to undertake specific programs or activities with a view to achieving a specified or identified objective.

2/ The Specific purpose subsidy hereof shall have the following objectives:

a)         Narrowing down the regional infrastructural gaps;

b)         Building the institutional capacity;

c)         Achieving key national policy goals in areas of sub-national jurisdiction that needs due attention of the Federal Government;

d)         Providing support for the least- developed Nations, Nationalities and peoples;

e)         Compensating Regional States that provide services which have positive or negative spillovers effects on other jurisdictions;

f)         Assuring that women and persons with disabilities have equal participation and are equally benefiting;

g) Supporting activities for sustainable development and to withstand climate change.

10. Principles to be Employed while Distributing a Specific Purpose Subsidy

The subsidy having a specific purpose or so restricted with a purpose shall be allocated or distributed for the Regional States in compliance with the fundamental principles indicated here below:

a) Encouraging or motivating efficiency in performance and effectiveness in terms of budget utilization;

b) Entrenching transparency and accountability;

c) Respecting the Constitutional rights and powers of the Regional States and being founded on their accord;

d) Enabling the Regional States predict the amount of share that they would anticipate to obtain from the subsidy with a view to preparing their respective mid-term plans;

e) Pursuing a transparent, participatory and easily understandable procedure;

f) Ensuring that the amount of subsidy is found to be adequate enough to accomplish the intended objective.

11. Preparation of the Specific Purpose Subsidies

1/ Where the Federal Government prepares a program of subsidy having a specific purpose or so restricted by a purpose, it shall secure beforehand the consent of the Regional States benefiting therefrom as regards the amount, objective, implementation and effectiveness of such subsidy.

2/ The Federal Government and the variety of its institutions may be able to prepare and implement programs of subsidy so restricted by a purpose; provided, however, that the final authority to determine its distribution shall remain with the House.

12.       Criteria of the Distribution and its Duration

1/ The criteria through which the subsidy having a specific purpose or so restricted by purpose is distributed shall be determined on the basis of its objective.

2/ The duration of the programs of subsidy having a specific purpose or so restricted by purpose, to be decided as the case may be, shall have to be aligned with that of the subsidy having a general purpose.

PART THREE SHARING OF JOINT REVENUES

13.       Objectives

The division of joint revenues shall have the following objectives:

a)         Ensuring that the Federal and Regional States have an equitable share of the revenue taking into consideration their respective Constitutional powers and duties;

b)         Narrowing down the horizontal fiscal imbalance between Regional States;

c)         Promoting a healthy economic competition that should thrive between and among the Regional States;

d)         Assuring that the local community and the next generations are benefiting from the revenues derived from the natural resources;

e)         Ascertaining that such an allocation would enable to compensate for the lasting harm possibly caused to the locality availing the resource in question, rebuild and re-organize the infrastructural facilities whose services have been disrupted.

14. Principles to be employed for the Enforcement of the Joint Revenue Sharing

1/ The respective shares of the Federal Government and Regional States shall be determined based on the principle of equity.

2/ The Distribution of the joint revenues between and among the Regional States shall be carried out having recourse to the principles of derivation and equity, depending on their particular relevance.

3/ The types of revenues that would enable to lure investment and accelerate economic activities by encouraging healthy competition between and among the Regional States shall take into account the derivative principle.

4/ Those types of revenues that are unsustainable, related with natural resources, unevenly distributed among regions or the source of which is found to be difficult to trace shall be subject for possible distribution, having due regard to the principles of either equity or per-capita equality.

5/ The revenues to be derived from the natural resources shall be allocated in a way that compensate for the harm possibly caused to the infrastructural facilities and the environment due to the exploitation of the natural resource in question and thereby reimburse the benefits lost to the local inhabitants as the result of such development.

15. Criteria for  the  Execution  of  the Sharing

1/ The Joint revenues shall be shared between the Federal Government and the Regional States taking into account their expenditure needs and revenue- raising capacity.

2/ The amount of share to which the Regional States are entitled to obtain out of the revenue shall be distributed as between and among them, having due regard to their expenditure needs and revenue-raising capacity.

3/ The shares of the Regional States and the Federal Governments from those joint revenues to be distributed based on the principle of derivation shall be determined following the procedure in Sub-Article (1) above.

4/ Size of population shall be the basic criteria if the joint revenues are to be distributed among Regional States based on the principle of equal per capita.

5/ The Regional States‟ share of revenues derived from natural resources shall be distributed among themselves taking in to account their respective expenditure needs and revenue raising capacity.

6/ The amount of revenue granted specifically to compensate the harm possibly caused to the local infrastructural facilities and the environment and to reimburse the benefits that the local community loses shall be proportional to the problems faced.

16.       Integration with the Federal Subsidy

1/ The division of Federal subsidies and joint revenues shall be designed in an integrated manner considering their goals.

2/ The House shall get enough information about the long-term and mid-term budget plan of the Federal government in consultation with the Federal government on the process of determining the total pool of the Federal subsidies as the size of the pool has direct impact on the joint revenue sharing.

PART FOUR INSTITUTIONAL ARRANGEMENT

17.       The House of Federation Secretariat

1/ The House can strengthen the House Secretariat with neutral professionals that have related knowledge and proficiency upon competition and fulfill essential resources in order to properly discharge its duties and responsibilities in connection with the distribution of the federal subsidy and joint revenues.

2/ The Secretariat shall be independent and neutral in and while carrying out its functions in accordance with the Constitution and the provisions of this Proclamation.

18. Powers and Duties of the House Secretariat for the implementation of this Proclamation

The Secretariat shall, pursuant to this Proclamation, have the following specific powers and duties:

1/ Prepare the desired recommendation regarding the formula through which the Federal Government allocates or distributes subsidy to the Regional States or joint revenues referred to as

„concurrent‟ for both the Federal Government and the Regional States are shared and thereby submit same to the House;

2/ Prepare a program of subsidy having a specific purpose or so restricted by purpose in respect of such matters as are believed to be vital by the House as well as over which the Federal Government and Regional States reach common understanding and thereby submit its recommendation to the House;

3/ Evaluate subsidies having a specific purpose or so restricted by purpose to be prepared and implemented on the part of the various institutions belonging to the Federal Government and thereby submit its expert opinion to the House;

4/ Carry out a follow-up activity on the basis of a prior study regarding the equitable distribution of the infrastructural facilities stretched out across the Regional States under the ownership of the Federal Government and submit its periodical catch-up report to the House;

5/ Closely monitor the implementation of the formulae for the distribution of the Federal subsidy and joint revenues, conduct periodic studies with regard to the effectiveness of such distribution as well as prepare and submit amendment proposals to the House;

6/ Carry out such functions as are assigned to it by the House in relation to its duties.

19.       Relationship with the House

1/ The Secretariat conduct its relation with the House through the Grant Budget and Shared Revenue Affairs Standing committee.

2/ The standing committee shall monitor and oversee the Secretariat‟s performance for the implementation of this Proclamation and present its report to the House, as deemed necessary.

PART FIVE

SYSTEM OF THE DIVISION OF THE FEDERAL SUBSIDIES AND JOINT REVENUES

20.       Principle

1/ Whenever it is found necessary to prepare a new subsidy budget or joint revenues‟ distribution formula, the House shall render an instruction of assignment for the Secretariat.

2/ The Secretariat so instructed pursuant to Sub-Article (1) of this Article hereof shall prepare the appropriate recommendation and submit same to the House.

3/ Where the House has, after due examination,  accepted           the recommendation submitted thereto, it shall notify same to the Federal Government body concerned with the subject so that the decision would be implemented forthwith; Furthermore, it shall closely monitor and supervise that the distribution be executed in compliance with the formula so  decided there-upon.

21.       Instruction for Work

1/ The instruction for work which the House renders to the Secretariat shall contain the following particulars:

a)         The type, purpose and goals of the formula;

b)         Fundamental principles resorted to for the preparation of the formula;

c)         Specific criteria and particularities taken for the distribution;

d)         The moment in which the preparation of the formula may be launched and finalized.

2/ Notwithstanding the provision laid down in Sub-Article (1) of this Article hereof, the House may not be barred from incorporating any other matters in its instruction for work that it believes to be instrumental for the preparation of the new formula.

3/ The instruction for work which the House renders to the Secretariat to initiate the preparation of a new formula shall have to be issued at least three consecutive fiscal years before the completion of the effective period of the existing formula in force.

4/ Where it is found necessary to harmonize the existing formula with the currently available data, the instruction of work to be handed down by the House shall be issued at least eight months before the date on which the revised formula will have been adopted.

22.       Preparation of the Formula

The Secretariat shall:

1/ Pursuant to the instruction of assignment given it by the House, prepare the initial proposal required for the crafting of the details of the framework formula;

2/ Construct the draft distribution formula using the up-to-date and reliable data;

3/ Conduct the necessary consultations with the pertinent Federal Government institutions and the Regional State bodies, collectively and individually, on the draft formula for the distribution of subsidy and joint revenues;

4/ Submit to the House the final recommendation it has come up with in relation to the distribution formula four months prior to the date on which its determination will have been anticipated.

23.       Content of the Recommendation

The recommendation to be prepared concerning the formula and submitted to the House shall incorporate the following principal issues:

a)         The type of the distribution formula, its objectives, principles and criteria;

b)         A short statement containing the calculations undertaken on the basis of the criteria of the formula;

c)         The Preparatory conduct of the formula;

d)         The kind of data, their sources and method of their utilization;

e)         The share of the Federal Government and/or that of each and every Regional State;

f)         The implementation process of the formula.

2/ The House, after the Speaker put signature, shall send the decision made concerning the subsidiary distribution formula to the concerned bodies for its implementation.

24.       Data

1/ The data to be utilized as an input for the preparation of the formula shall have to be up-to-date and reliable.

2/ Any kind of data to be employed for the preparation of the formula shall mainly be generated from the Federal Central Statistical Agency.

3/ Notwithstanding the provision stipulated in Sub-Article (2) of this Article hereof, the data to be generated from the Concerned Federal Institutions, Regional States may also be put to use for the preparation of the formula depending on their credibility.

4/ The Federal and Regional executive bodies as well as other data-generating institutions concerned with the matter shall have the duty to cooperate in providing the data found to be necessary for the preparation of the formula.

5/ Whosoever fails to discharge his duty to provide the data necessary for the preparation of the formula as required by this proclamation shall be liable in accordance with Freedom of the Mass Media and Access to Information Proclamation.

25.       Follow-Up and Supervision

1/ The House shall follow up, supervise that the distribution of the subsidy and that of the joint revenues be executed in accordance with the formula determined thereof.

2/ The government bodies charged with the responsibility to carry out the appropriate sharing shall follow up that the distribution of both the subsidy and joint revenues has been executed as per the formula determined as well as submit an annual and up-to-date report to the House.

3/ The report to be submitted in relation to the joint revenues shall, in general, show the amount of resource to be collected by the type of revenue as well as that portion which the Federal Government and the Regional States are entitled to obtain out of each and every type of revenue thereof.

26.       Resolution of Misunderstandings

1/ Where misunderstandings have been created around the distribution of joint revenues, the parties disputing over the issue at hand shall have the responsibility to settle their differences first through discussion and negotiation.

2/ Where it has been informed that any kind of misunderstanding is far from being resolved through discussion and negotiation, the House shall take a measure towards the solution which it considers appropriate to that end.

3/ Decision of the House rendered according to Sub-Article (2) of this Article shall be final.

PART SIX MISCELLANEOUS PROVISIONS

27.       Inapplicable Laws

No other Proclamation, Regulation, Directive or customary practice contrary to this proclamation may apply to matters covered by this Proclamation.

28.       Power to Issue Regulation and Directive

The House of Federation may issue Regulation and Directives necessary for the full implementation of the provisions of this Proclamation.

29.       Effective Date

This Proclamation shall enter into force up on the date of publication in the Federal Negarit Gazette.

Done at Addis Ababa, On this 2nd Day of July, 2021.

SAHLEWORK ZEWDIE PRESIDNET OF THE FEDERAL

DEMOCRATIC REPUBLIC OF ETHIOPIA

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