Fiscal decentralization and poverty alleviation in a transitional economy the case of viet nam

We argue that both general and specific transfers are needed for this purpose: the trans-former to enable all provinces to provide a given basket of public services at a given tax-price

Fiscal Decentralization and Poverty

Alleviation in a Transitional Economy:

The Case of Viet Nam

ameliorat-to some extent, be implemented through, or affected by, intergovernmental fers From this perspective, we analyse the efficacy of intergovernmental fiscal arrangements in poverty alleviation in a transitional economy, Viet Nam We argue that both general and specific transfers are needed for this purpose: the

trans-former to enable all provinces to provide a given basket of public services at a

given tax-price by offsetting their revenue and cost disabilities and the latter to

ensure that minimum levels of those public services provided by lower levels of

government are targeted to the poor throughout the country.

I Introduction

A successful poverty alleviation strategy in any country has four distinct elements.First, who are the poor? Where are they located, and what do they do? Second,why are they poor? Only after we know who the poor are, where they live, whatthey do, and have some idea of the causes of poverty, can the third element inthe strategy, the design of a set of specific policies to improve the living stand-ards of the poor, be determined Third, experience suggests that effective strat-egy to improve the living standards of the poor require both measures aimed ataccelerating economic growth (capacity improving) to provide a lasting solution

to the problem, and more direct (safety net) policies to provide an immediate

consumption entitlement to the poor Finally, policies must, of course, be mented effectively to ensure that benefits actually accrue to the targeted groups

imple-at the lowest cost

Fiscal decentralization may, in principle, enter this picture at several differentlevels The proximity of policy makers to the people, for example, may reducethe information and transaction costs in identifying the poor and help in design-ing appropriate ‘capacity improving’ and ‘safety net’ policies Decentralizedprovision of public services enhances welfare when there are significant local-ized differences in preferences although the extent to which this ‘decentraliza-tion theorem’ (or ‘principle of subsidiarity’) actually influences policy in anycountry, of course, depends upon how a nation’s political institutions are organ-ized (Oates, 1972) Further, effective implementation of capacity-improving andsafety-net policies may depend upon the close involvement of local governanceinstitutions Governments that are ‘closer to the people’ should, in principle, beable to provide services more efficiently and effectively than a remote, central-ized authority provided responsibilities are assigned appropriately and the rightincentives are provided through the system of intergovernmental fiscal arrange-ments (Bird, 1993)

Different regions may have different needs and preferences for poverty viation and different capacities to meet those needs and preferences If povertyalleviation is a national policy concern, but some key poverty-alleviation pol-icies are for whatever reason delivered by local governments, the capacity ofthe latter to finance such services out of their own resources is likely to differgreatly In Viet Nam, for example, provinces with a high concentration of pov-erty also have low levels of social and physical infrastructure, low agriculturalproductivity, and low per capita gross domestic product (GDP) Intergovern-mental transfers may thus have to be designed to ensure that the poorer localitieshave sufficient resources to deliver the desired ‘package’ of services (Rao andDas-Gupta, 1995)

alle-This paper considers how fiscal decentralization and central transfers tosub-central governments can help in the task of poverty alleviation policy inViet Nam In Section II, we describe briefly the poverty situation in Viet Namand introduce the appropriate design and implementation of policies required toaccelerate economic growth and reduce poverty in the light of the experience

of successful East Asian economies In Section III, we consider the role of ral and local governments in designing and implementing poverty-alleviatingpolicies and the design and mix of different types of intergovernmental transferschemes In the light of this conceptual discussion, we then analyse in Section

cent-IV current intergovernmental fiscal arrangements and transfer systems in VietNam Finally, in Section V, we suggest how the intergovernmental fiscal systemmight be reformed to improve poverty-alleviation policies in Viet Nam

II Poverty, Public Policy, and Fiscal Decentralization

II.1 Where do the Poor Live?

The Viet Nam Living Standards Measurement Survey (LSMS) highlights fourimportant features of poverty in Viet Nam (see Table 1) namely: (i) the overallincidence of poverty is extremely high; the consumption level of 51% of popu-lation is below a widely used international poverty line;1

(ii) there are significantregional variations in the incidence of poverty within the country, ranging from33% in the South East to 71% on the North Central Coast; (iii) poverty is abouttwice as common in rural as in urban areas and rural poverty accounts for almost90% of the poor; and (iv) almost 76% of the poor are in the farming population

As Table 1 shows, in Viet Nam poverty is not only associated with low percapita income, low population density and low agricultural productivity but isalso reflected in low indicators of human development such as infant mortality,maternal mortality and illiteracy The inverse relationship between the povertyratio and agricultural productivity reflects at least, in part, the importance ofsuch economic services as irrigation, agricultural extension, rural roads and ruralcredit in reducing poverty Similarly, the high poverty ratio in areas with lowpopulation density reflects in part the lack of social and economic infrastructurefor the population in mountainous and remote regions

II.2 Poverty and Public Policy: The Asian Experience

Policy interventions to combat poverty may be divided into two broad groups(Bhagwati, 1988) First, longer-term policies attempt to create an environmentfor the efficient use of resources and technological progress and to direct the flow

of benefits of ensuing faster growth to the poor: ensuring a conducive incentivestructure through land reforms, generating larger farm and off-farm employmentopportunities through the provision of irrigation, agricultural extension and ruralinfrastructure and investment in human resources through publicly funded broadbased education and primary health care Second, shorter-term policies to provideimmediate relief through self-employment and wage-employment opportunitiesand social security to the disabled and the destitute

The experience of such Asian economies as Taiwan (China), South Korea,Indonesia, Malaysia and China underlines the importance of public investment

in rural infrastructure and human capital in generating broad-based growth inrural incomes and reduction in rural poverty irrespective of the political sys-tems In all these countries, rural transformation was achieved by improving thequality of physical and social infrastructure, improving access to education andhealth facilities, raising agricultural productivity and expanding rural non-farm

1 The poverty line is based on a basket of goods in which food items contain 2100 calories per person per day and the non-food items reflect the cost of basic goods consumed by the people who just reach the poverty line.

Table 1 Regional Profile of Income Levels, Poverty and Social Development in Viet Nam

Region Poverty Ratio Per Capita Density of Illiteracy Rate* Infant Maternal Agricultural

GDP – 1993 Population Mortality Rate Mortality Rate Productivity (1989 Prices) Per sq km (Per 1000 births) (Per 1000 births) (Paddy equivalent)

Rural Urban Total

Note: * Percentage of population above 10 years who never attended school has been taken as a proxy for illiteracy rate.

Source: Bird, Litvack and Rao (1995).

activities This experience suggests that publicly funded investments in ruralinfrastructure (roads, bridges, irrigation and electricity) and broad-based educa-tion and health care in rural areas are critical in the early years of rural transforma-tion The combination of rural infrastructure and human resource development led

to improvements in productivity, opened up markets, hastened the demographictransition, enhanced the mobility of labour, strengthened urban-rural linkagesand accelerated rural industrialization Together with changes in the incentivestructure initiated by the land reforms in the early phase of development (as inTaiwan, South Korea and China), investments in rural infrastructure, rural institu-tions and human resource development not only led to strong growth perform-ances, but also created an equitable basis of growth and resulted in a significantdecline in poverty.2

The experience of Viet Nam itself highlights the pressure

of demand for rural public services created by the change in the incentive ture with the return to family farming and market opportunities (World Bank,1993b)

struc-As in other struc-Asian economies, analysis of household data in Viet Nam lines the importance of physical and social infrastructure in rural areas As men-tioned earlier, the poor in Viet Nam are concentrated in areas where agriculturalproductivity is low Those who live near all-weather roads have higher incomes,and education has a significantly favourable effect on agricultural productivityand small household enterprise earnings Households with more diverse economicactivities enjoy higher living standards Such findings suggest that significantlevels of investments in irrigation, agricultural extension and research, ruralroads and marketing facilities, access to information and knowledge, marketsand technology and above all basic education and primary health care in VietNam are needed to achieve appreciable reduction in poverty in the medium term(Wiens, 1996; Van de Walle, 1996)

under-III Fiscal Decentralization and Poverty Alleviation

III.1 Role of Local Governments in Poverty Alleviation

What is the role of local government expenditure policies in reducing poverty?

If poverty alleviation is considered as a purely redistributive task, in principle itsimplementation should be the responsibility of the central government since thepotential mobility of population limits the efficacy of sub-central governments

in undertaking these redistributive policies (Brown and Oates, 1987; Ladd andDoolittle, 1982) Moreover, if concern for the poor of one locality is not con-fined to the residents of that locality, the volume of resources allocated by the

2 See, World Bank (1993a) for a discussion on the contribution of these factors in imparting dynamism to the agricultural sector in East Asian economies Ranis (1995) also stresses the impor- tance of well developed rural (roads, drainage, irrigation and power) and institutional infrastructure (agricultural research, experiment stations and farmers’ associations) and effective land reforms in Taiwan and South Korea.

locality for poverty alleviation would be non optimal.3

However, even from thislimited perspective, local governments may, as noted earlier, have a role to play;governments that are closer to the people should, as a rule, be able to provideservices more efficiently than a remote, centralized authority

More importantly, as already mentioned, a lasting solution to the problem ofpoverty can be achieved only by accelerating economic growth by promotingefficient allocation of resources The literature on fiscal federalism has high-lighted the potential efficiency gains from the better matching of the supply withthe demand for public services in different localities and more flexible bundling

of public services (Breton, 1990) when the allocative function is decentralized.Moreover, competition among jurisdictions may lead to greater innovations andproductivity gains (Oates, 1977; Shah, 1994).4

Whether or not fiscal decentralization is a help or a hindrance in designingand implementing poverty alleviation policies, it is an important institutionalreality in a country like Viet Nam with a unitary political system and a signific-antly planned economy How existing decentralized institutions can be gearedand reoriented to enhance efficiency in the delivery of public services, accelerateeconomic growth and reduce poverty is thus an important question

III.2 Intergovernmental Transfers: Rationale and Design

Transfers between governments often coexist with transfers between personsexecuted through tax-transfer schemes and public spending policies Intergovern-mental transfers may be explained in various ways: (i) closing the fiscal gap aris-ing from the assignment of more expenditure responsibility than revenue sources

or ensuring adequate funds for the sub-central governments to satisfactorilyundertake the functions assigned to them; (ii) offsetting the imbalance betweenrevenue capacity and expenditure need across different sub-central governments(equalization); and (iii) Pigovian-type transfers needed when the benefits ofpublic services spill over jurisdictional boundaries to ensure optimal supply or aprescribed minimum levels of those services considered ‘meritorious’ by thecentral government (Bird, 1993; Shah, 1994) Broadly, general-purpose transfers

3 Brown and Oates (1987) and Ladd and Doolittle (1982) argue for central intervention on the grounds that poverty anywhere in a country is a concern for people everywhere In contrast, Pauly (1973) and Tresch (1981) present a local public good view of poverty alleviation and assume limited mobility of labour to justify local interventions in poverty alleviation.

4 Bahl and Linn (1992), however, think that this efficiency case for decentralization in developing countries is much weaker than industrialized countries Prud’homme (1995), takes an even stronger position when he argues that decentralization would result in lower allocative efficiency because the local bureaucracy is less efficient (economies of scope) and more corrupt (see also Tanzi, 1995) However, experience shows that capacity or efficiency of local bureaucrats, even when it is seen to

be low in a static situation, may improve dramatically when greater responsibility is assigned and right incentives are given, as in Colombia (see, World Bank, 1995) As regards corruption, it may also be argued that greater transparency in public spending and taxes at the local (rather than central) level may lead to higher accountability (hence less corruption).

are intended to meet the objective of equalization and specific-purpose transfers(with matching requirements from local governments) are considered appropri-ate (cost effective) for transfers given for spillover or merit good reasons.5

Arguments for equalization were advanced initially by Buchanan (1950) andlater developed by Boadway and Flatters (1982) Taking comprehensive income

as an index of wellbeing, it is argued that a central income tax can not ensurehorizontal equity since it does not take account of the redistributive effect oflocal fiscal operations, which can not be distributionally neutral (except in theunlikely case of their financing public services through only benefit taxes) Whenlocal public services are financed by resource rents or source-based (as againstresidence-based) taxes, the net fiscal benefits (NFBs or benefits less locally bornetaxes) will vary systematically with residents of resource-rich (high-income)regions having higher NFBs, inefficient migration into these regions may thus

be induced For both efficiency and equity reasons then, it may be argued thatthere should be transfers from the rich to poor regions to offset the fiscal dis-advantages arising from lower revenue capacity and higher unit cost of providingpublic services This can be achieved by a general-purpose transfer equivalent tothe ‘need-revenue’ gap (Bradbury, et al., 1984), which measures the differencebetween what a local government needs to spend to provide a specified level ofpublic services and the revenue it can raise at a given level of tax effort.Transfers meant to deal with spillover problems or those given for merit,

good reasons are required to ensure that local governments provide a prescribed

normative (minimum) level of specified public services Such transfers arecost effective when the purpose for which they are given is specified, and sub-national governments are required to make a matching contribution with thematching ratio varying with the size of the spillovers.6

The objective of intergovernmental transfer, in principle, is thus, not poverty alleviation per se Rather, such transfers are intended to offset local fiscal dis-

abilities and to ensure the provision of prescribed standards of specified publicservices Of course, one such service might take the form of specific povertyalleviation programmes By enabling the provision of a reasonable level ofphysical and social infrastructure in low-income areas where the poor are con-centrated, as well as the maintenance of selective schemes to provide short-termself-employment and wage-employment opportunities, the intergovernmentaltransfer system may thus in practice be an important instrument in poverty-alleviation strategy

An ideal set of intergovernmental fiscal arrangements would include the lowing elements: (i) adequate resources in the hands of local governments as

fol-a whole, from fol-a combinfol-ation of locfol-al tfol-axes fol-and centrfol-al trfol-ansfers, to enfol-able them

5 Of course, both type of transfers help close the ‘fiscal gap’.

6 Since the responsiveness of sub-central governments to a given matching ratio may vary with their level of incomes, to elicit equal responsiveness, equalizing matching ratios may be required (Feldstein, 1975).

to carry out their assigned functions; (ii) a transfer system that ensures each vidual local government has sufficient resources to provide essential functions at

indi-an acceptable stindi-andard, provided local taxes are imposed at reasonable rates; (iii)sufficient flexibility in setting local taxes and charges so that local governmentscan respond to the preferences, special problems, and resource endowments pre-vailing in different regions; (iv) sufficient incentive to ensure that local fiscal effort

is maintained and local budgets are managed efficiently; and (v) where minimumlevels of spending on specific programmes are considered to be of national im-portance, specific-purpose transfers, sometimes with matching requirements.Such an ideal system, is seldom found in practice, and certainly not in coun-tries such as Viet Nam where, traditionally a unified budget has been employed

as a tool to implement central planning Nonetheless, an essential, but oftenunduly neglected part of the transition towards a more market-oriented economy

is precisely a change in the budgetary and intergovernmental system (Bird andWallich, 1993), and such a change is under way in Viet Nam

IV Fiscal Decentralization and Delivery of Public Services in Viet Nam

IV.1 Structure of Local Governments

Like most centrally planned economies, Viet Nam has a ‘deconcentrated’ tem, in which the centralized state authority is extended to local administrations

sys-in provsys-inces, districts and communes.7 In this unified structure of government,local governments do not have independent decision-making authority Nonethe-less, the system provides for local involvement to ensure that the public servicesare delivered in response to the local needs and development is in conformitywith local resources In this so called ‘double subordination’ system, local gov-ernments are thus accountable in a sense to both the electorate and higher levelgovernments

Within the unified state, the government is deconcentrated into three locallevels – provinces, districts, and communes The structure of local governmentconsists of 53 provinces, 560 districts, and 10,032 communes The unified budgetincludes the revenues and expenditures of the centre, the provinces and thedistricts Delivery of public services at the commune level is included only tothe extent that it is financed by grants from higher-level governments.8

IV.2 Assignment of Expenditures and Taxes

The assignment of expenditures to different levels of government in Viet Nam

is based on a resolution of the Council of Ministers passed in November 1989,

as subsequently amended Local governments are responsible for ensuring law

7 For a discussion on typology of decentralization, see, Rondinelli (1996) For a useful description

of the ‘double subordination’ system see, World Bank (1996), pp 42–43.

8. Note that as used here, ‘local governments’ refers to all subnational levels.

and order within their jurisdictions, but, as in many other countries, with a fewexceptions such as defence most responsibilities are shared more on the basis ofthe size of the projects than the type of expenditure Large investment projects,the benefits of which spill over to a number of provinces, are central respons-ibilities, while small projects benefiting mainly the residents of a province areundertaken by provinces Thus, all major irrigation, flood control and embank-ment projects and national highways are central responsibilities, but the mainten-ance and repair of minor irrigation works and roads other than national highways

is a local responsibility Similarly, primary and secondary education is mainlyassigned to the provinces, but higher education is central, and major hospitalsare managed by the centre, while the provinces run hospitals in provincial townsand districts Provinces are also responsible for the public health centres run atthe commune level

Thus, in principle, local governments have a significant role in the delivery

of public services Expenditure incurred by the provinces constitutes almost athird of the total (Table 2) Their expenditure share is especially high in suchsocial services as education and health Moreover, although most capital expen-ditures are incurred by the centre, the provinces play a major role in maintainingpublic investments and in activities like agricultural extension and rural roads.Consequently, their share in current expenditures on economic services is alsosignificant

Nevertheless, the provinces’ leeway in altering expenditure levels is strained by the absence of significant revenue-raising powers The responsibility

con-Table 2 Government Expenditure in Viet Nam (1992)

Total Expenditure Per Capita Per cent Per cent Share of (Bn Dongs) Expenditure of GDP of Total Provincial

for determining the tax base and the rate structure of all taxes lies with thecentral government Except for taxes on foreign trade (administered by the cus-toms department), tax administration and enforcement is done by the GeneralDepartment of Taxation (GDT) of the Ministry of Finance (MOF) and by pro-vincial and district tax offices under its direction The centre determines virtuallyall aspects of tax policy, but the provinces effectively control tax collection,ensuring that the targets set are achieved through proper enforcement in part byproviding cash incentives to provincial and district tax departments Provinceshave an incentive to overreach centrally determined targets because the excessamount can be used by the province for any social or economic service (not gen-eral administration) In addition, provinces can collect some minor charges andfees, although in total these account for less than 5% of their revenues.

IV.3 Balancing Provincial Budgets

The budget law, which assigns expenditure functions to the central and local ernments, also provides financing for them either through tax revenue assign-ment or grants The determination of expenditures and assignment of revenues

gov-to the different levels of government is carried out through the budgetary processinvolving a number of steps First, the MOF issues a budget circular in Junecontaining detailed guidelines for preparing the budget to be submitted to the MOF

by July or August The guidelines are prepared on the basis of macroeconomicforecasts, the strategic framework and the projected availability of resources.The guidelines also prescribe the norms for projecting expenditures under each

of the heads

Based on these guidelines, the provinces project current expenditures and alsoconsolidate similar estimates they receive from the districts In a parallel process,they also prioritize their own investment projects and those submitted by thedistricts and communes and submit them to the Ministry of Planning and Invest-ment (MPI) Similarly the central line ministries submit forecasts of currentexpenditures to the MOF based on the guidelines, and investment projects to theMPI These ministries also prepare the estimates with respect to the NationalProgrammes (see below) – the specific purpose transfers to local governments.The MPI then finalizes the investment outlay of the central government and each

of the provinces The GDT and the customs department prepare forecasts ofrevenues and the State Bank of Viet Nam (the Central Bank) provides an estimate

of borrowing Finally, the MOF puts together the estimates of revenue fromdomestic and foreign sources and establishes budgeted recurrent and investmentexpenditures to balance the revenues As a rule, the central expenditure forecastsmade by the provinces and line ministries are far in excess of the availableresources, two or three rounds of negotiations are required between the budgetdepartment of MOF and the provinces and other spending agencies

Once the expenditures of each of the provinces are finalized, revenues areassigned to meet these expenditures through a combination of methods Certain

revenue sources are assigned directly to the provinces Collections from tain other taxes are shared with them The residual gap is filled by sharing theproceeds from the turnover tax.9

Finally, if turnover tax is not adequate to fillthe gap, cash grants are allotted The effect of policy and price changes, madebetween the budget cycles, on revenues and expenditures are calculated by theMOF, and additional grants are given, if necessary

Thus, although the provinces account for almost one-third of total spending,their actual role in determining expenditure decisions is limited The selection

of investment projects is done by the MPI Provincial preferences are taken intoaccount only indirectly, and the final selection is both complicated and non-transparent Similarly, though the provinces project current expenditures based

on an elaborate set of norms, the norms themselves are developed with respect

to revenue constraints and hence do not really represent cost/need factors equately Moreover, in the end expenditure levels are decided by negotiations tomatch revenues, and the norms lose much of their relevance anyway Provincesalso have very limited flexibility with regard to the composition of expenditure.Even though in principle, they can vary allocations between different functionswithin the overall ceiling, in practice they have hardly any leeway since thecentre determines both the number of employees and their salary levels in eachdepartment Provinces can spend more than the budgeted amounts only when theyare able to collect more than the targeted amount of revenues assigned to them.Two features of revenue assignments are notable First, as may be seen fromTable 3, there is no fixity or stability in the assignments; the type of tax and theproportion to be assigned to each province is determined afresh every year The

ad-ad hoc nature of assignments makes it difficult for local governments to planexpenditures This problem should be obliterated by a new Budget Law imple-mented in 1996 under which the arrangements will remain stable for five years.Second, the system provides incentives to the provinces to distort the estimatesbecause they can retain revenues in excess of the targets and either spend theexcess or economic and social services or build the financial reserves

IV.4 Evaluating Fiscal Arrangements

The preceding discussion shows that the system of transfers in Viet Nam fallsfar short of the ideal discussed in Section III Indeed, the concept of transferitself is unclear At one extreme, all revenue collections made by a province may

be considered as its own; in this case, the difference between expenditures andrevenue collections may be construed as transfers Another concept of transferswould be to consider the transfers as the balancing component – the share ofturnover taxes and the cash grants received by provinces Perhaps, the most

9. A province’s share of turnover tax is given by (E i – R i )/T i if (E i – R i ) > 0, where E i , R i , and T i

respectively represent expenditures, assigned revenues from other tax and non tax sources ing cash grants), and revenue from turnover tax in the i th province.

Table 3 Revenue Assignment to Provinces in Viet Nam 1993–94

major minerals (oil)

5 Personal income tax

1994

1 External trade taxes

2 Special consumption tax

3 Profits and depreciation of central enterprises

4 Revenue from major minerals (oil)

7 Personal income tax (Except in Ba Ria-Vung Tau)

8 Taxes on lottery

9 Transportation fees

10 Revenue from forestry

11 Other minor fees and taxes

1993

1 Six provinces of the Mekong River delta received shares of agricultural taxes ranging from 8 to 60% The remaining provinces received the entire collections

2 Turnover tax

1995

1 Turnover tax (39 Provinces received

a 100% share and the remaining received varying shares depending on the difference between projected expenditures and all assigned revenues)

2 45 provinces received the entire collections from profit tax The remaining 8 most prosperous provinces received 50% of the tax collected in the province

realistic solution is to consider the entire expenditure of the provinces ing the small amount of fees and charges they levy) as a transfer since provinces

(exclud-do not have independent power to raise taxes The critical factor in determiningtransfers is thus the preparation of the expenditure budget at the provincial level,and the relevant test in evaluating them is the distribution of expenditures acrossthe provinces – whether they enable the poorer provinces to provide a givenlevel of public services at reasonable tax rates

As already noted, expenditure determination is beset with a number of lems The process of selecting investment projects is both complicated and non-transparent, and is certainly not based solely on consideration of the relative needs

prob-of the provinces The fact that provinces can use ‘excess’ revenue collections asthey wish advantages the more prosperous provinces The norms specified as thebasis for projecting current expenditures do not adequately represent needs norare expenditures finally allocated according to the specified norms Some attempt

is made to take account of cost differences by specifying different norms for cities,plains, midland and coastal areas, low mountainous and remote areas and high-lands, but it is not clear that the central government has adequate cost informationfor this purpose In addition, the constraint on resources causes the norms to beset too low to provide reasonable levels of services.10

Inter-Provincial distribution

of social and economic infrastructures is thus less a matter of objective analysisthan of negotiation and bargaining In the final analysis, the allocation of expend-itures basically responds to bureaucratic and political judgements at the centrallevel, although the relationship between political leaders at the central and pro-vincial levels also appears to play an important role in expenditure allocation.Uncertainty in revenues renders planning for the medium term difficult More-over, larger revenue collections in a province in one year result in higher targetsfor the next year and appear, in at least some cases, to result in a lower provin-cial share of turnover taxes In Ha Noi, for example, revenue collections in 1993were more than 50% higher than in the previous year and exceeded the budgetestimates by 15% Much the same happened in 1992 Consequently, the share ofturnover tax accruing to the city was reduced from 70% in 1992 to 36% in 1993and was further reduced to just 6.3% in 1994

Another source of possible inequity is in the system of revenue projectionitself The tax department consistently tends to underestimate revenues so that itcan easily fulfil the targets set This is in the interest of provinces as well, sincecollections in excess of the targets can be spent by them Unsurprisingly, actual

10 In the case of education, for example, on an average, per capita expenditure in 1991–92 was just about US$1 and as over 80% was spent on teachers’ salaries alone, little was left for books, furniture and educational aids In fact, in Soc Trang, one of the poorer provinces, per student expenditure was less than US$2 The situation is equally bad in the case of economic services In Thanh Hoa, for example, the sanctioned budget for strengthening embankments is less than 10% of what is requested, with the result that the province must mobilize a lot of voluntary labour from the community even to strengthen the weakest segment of the embankments The situation is similar in the case of other services.