LPSA’s Thematic Working Group on Subnational Finance – Open Meeting – December 2023

December 5, 2023 (9:30 EST/ 14:30 GMT/ 15:30 CET)

LPSA’s Thematic Working Group Meeting on Subnational Finance took place on December 5, 2023, (9:30 EDT/ 14:30 GMT/ 15:30 CET). The meeting was opened and moderated by Elton Stafa from Network of associations of local authorities of South-East Europe (NALAS), who serves as one of the co-chairs of the working group.

Tony Levitas followed up with a presentation on Personal Income Tax as an important instrument in local government finance. The Anglo-Saxon Fiscal Federalism advocated that municipalities should pay for most of their responsibilities through benefit taxes, with the ad valorem property tax being the best option. Sharing in post-communist Europe offers a technically easy solution for national governments to fill vertical gaps, while municipalities feel like they own revenue without the political burden of rate setting or the ‘indignities’ of grant dependency.

Dario Runic from the Association of Croatian Cities, Ministry of Finance of Croatia presented the Personal Income Tax Reform in Croatia. He highlighted that Croatia has a peaceful equalization system to address regional differences and Personal Income Tax is a significant source of shared tax revenue for local governments, accounting for 42% of all revenues. During his segment, Dario specified that “Personal Income Tax in Croatia is not shrinking, it’s growing”.

Muhammad Khudadad Chattha emphasized that Indonesia’s decentralized government system has a significant fiscal gap, with subnational governments relying on intergovernmental transfers for spending. The government is interested in personal income tax piggybacking, as a surcharge on the central government’s taxable income, aiming to help local governments manage existing revenue instruments. He presented the report on Personal Income Tax Piggybacking in Indonesia and provided valuable insights into the role of PIT piggybacking as an effective way to increase SNG fiscal independence without requiring additional administrative capacity. The study suggests that Indonesia’s PIT piggybacking could boost district own-source revenues by 8.3%, enhance SNG taxpayer accountability, and offer the government greater flexibility for future economic downturns. All the discussions were followed by Q&A sessions. Elton Stafa concluded the meeting with scheduling the next quarterly meeting.

A video of the meeting is available on YouTube. The links below provide access to the video segments of the different agenda items.

No.Agenda ItemContributorSlide Deck
1.Welcome & Introduction to Topic: Tax SharingElton Stafa
2.Conceptual Introduction: Tax Sharing as a Fundamental Instrument of LG Finance in EuropeTony LevitasView
3.Tax Sharing in Croatia – Personal Income Tax ReformDario RunticView
4.Personal Income Tax Piggybacking in IndonesiaMuhammad Khudadad ChatthaView
5.Q&AElton Stafa
6.Closing Remarks & Next StepsElton Stafa

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