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Fiscal Decentralization in the Republic of Macedonia:
The Case of City of Skopje
Prepared by: Aleksandra Nakeva-Ruzin, M.P.P.M. Formatted: Right: -0.04"
December, 2005
1
Elements of the Paper:
I. Introduction
II. Background of the Decentralization
III. The Phased Approach to Decentralization of Competences and its
Weaknesses
IV. The Intergovernmental Fiscal Relations Prior and After the Fiscal
Decentralization
V. Pitfalls in the Preparations and Implementations of the Fiscal
Decentralization
VI. Conclusions and Recommendations
2
I. INTRODUCTION
Decentralization is seen as essential by governments in most countries in the Balkans.
The accession to the EU of these countries requires a broad-based program of political
and economic reforms, and intergovernmental fiscal relations are an important
component of that package. The important questions concern how these countries can
get fiscal decentralization right, in order to secure its benefits while minimizing its
potential costs.
After almost 15 years of experience as an independent State, decentralization of
governmental authority to local government units in the Republic of Macedonia has
officially been implemented starting from July 1st, 2005. This was provided based on
the new Law on Local Self-government (2002)1 and in accordance with the amended
Constitution and consistent with the European Charter on Local Government of the
Council of Europe. The practical implementation of the new decentralized concept of
local self-government, and the financial autonomy and overall financing of the
municipalities, is regulated with the Law on Local Self-government Units Financing
(2004)2, which also sets out a phased approach for providing financial resources to
municipalities that would accompany the devolution of expenditure responsibilities.
The major challenge in assessing the degree of fiscal decentralization is measuring it
by the level of resource mobilization, resource allocation, fiscal capacity and sub-
national indebtedness, which in turn have an impact in fiscal imbalance and
macroeconomic instability, and efficient and equitable services. Taking into
consideration the recent introduction of the decentralization reforms in the country,
and that comprehensive policy evaluation requires some period under implementation,
this paper focuses on identifying and elaborating the major weaknesses of the
normative framework of fiscal decentralization and the pitfalls in its implementation.
It further provides recommendations for policy development and for undertaking
measures for overcoming the identified pitfalls.
The first part of the paper presents a comprehensive overview of the attempts for
decentralization in the Republic of Macedonia since the independence in 1991 until
now, as well as the normative framework for the decentralization of competences and
the fiscal decentralization introduced on July 1st, 2005.
The Section 3 elaborates in details the phased approach in implementing the fiscal
decentralization in Macedonia, the model recommended by the international financial
institutions, and the one actually applied in the country, as well as the major
weaknesses of the applied approach.
1
Official Gazette of the RM no. 5/2002
2
Official Gazette of the RM nos. 61/2004 and 96/2004
3
Section 4 focuses on the intergovernmental fiscal relations prior to, and after the
reforms, by elaborating the concept and the features of the fiscal transfers and
municipal own revenue sources. The aim of this part of the paper is to point out the
strengths and weaknesses of the reformed concept of intergovernmental fiscal relations
mainly from the normative perspective. Since the division of the power between
different tiers of government is not only about the division of revenues, the paper also
elaborates the assignment of the taxing powers, borrowing authority, autonomy in
taxing, budgeting autonomy etc.
The paper deals specifically with the case of financing of the capital City of Skopje,
for several reasons. First, due to the fact that the introduced concept of reformed
intergovernmental fiscal relations and the revenue classification applies equally to the
City of Skopje, as for all other municipalities in Macedonia. Consequently, the
detailed elaboration of the case of City of Skopje will confirm the validity of identified
weaknesses of the legal framework of decentralization and the pitfalls in its
implementation, across all municipalities. Second, certain specifics of the City of
Skopje make it an interesting case for elaboration and analysis: it represents a special
unit of local self-government, consisted of 10 municipalities and with no territory on
its own, and with additional specifics referring to sharing of the local taxes and
communal fees with the municipalities within the City. Finally, the total revenues of
the City of Skopje represent 27.7%3 of the total revenues of the local sector in
Macedonia.
The inclusion of the quantitative details on the different revenue sources aims to give a
perspective of the meaning and weight of each of the revenue sources for the
municipal financing, as to sense the effects of the reformed fiscal relations on the
ability of the local government to appropriately finance the decentralized competences.
The Section 5 focuses on the weaknesses in implementing the fiscal decentralization,
while Section 6 goes further in offering concrete recommendations for overcoming the
identified weaknesses, both in the legal framework, and in the preparation and
implementation.
3
Source: Annual accounts of Local Self-government Units for year 2003.
4
II. BACKGROUND OF THE DECENTRALIZATION
2.1. BACKGROUND
Macedonia has a rich history in local finances, which emanated from the former joint
state - the SFR Yugoslavia. Unlike the world’s centralistic tendencies, especially
during the ‘70, the SFR Yugoslavia was distinguished as a country with an extremely
high degree of decentralization, with a unique model of intersected fiscal federalism.
Because of the inherited circumstances up until 1990, a large number of activities in
the Republic of Macedonia, including education, health care and urban planning, were
managed and financed by the local authorities, by using their own sizeable revenues.
After gaining its independence, the overall efforts were put into direction of reforming
the system4. However, the political events in the Balkans, including highly expressed
nationalistic tendencies, the weak institutions and capacities, influenced country’s
economic and political systems to reach another extreme. The extreme decentralization
was transformed into an extremely high level of centralization. The position of the
central government was reinforced, while the local authorities lost their functions and
financial resources.
Based on an executive government decision, the governmental institutions (the
ministries and other institutions) took over a large number of competencies, staff,
equipment, inventory and property from the municipal authorities. After the
proclamation of the official independence of the country (with the Referendum held
September 8th, 1991), the process of redefining the societal organization and
enactment of the new Constitution began.
2.2. REVIEW OF THE REFORM
With the 1991 Constitution5 , local self-government is a part of the fundamental values
of the constitutional order of the Republic of Macedonia (Article 8, paragraph 1, line 9
and Chapter V - Articles 114-117). Article 114 of the Constitution guarantees the
4
At this point of time the Republic of Macedonia was faced with: 1) hyperinflation of over 1,000% a year; 2)
double digit drop in the GDP; 3) cumulated external debt etc.
5
Official Gazette of the Republic of Macedonia no. 52/91.
5
citizens the right to local self-government and defines the municipalities as local self-
government units where forms of self-government can be established.
The foundations of the local self-government system, as an obligation defined by the
Constitution, were not established until 1995, when the Law on Local Self-
government was enacted. However, the experience and the analysis of the
implementation of this Law led to the conclusion that the local self-government
system was inefficient and non-functional. The limited competencies and incomplete
financial autonomy of the municipalities did not correspond well to the European
Charter on Local Government.
The Law on Territorial Organization which defined the territory of the local self-
government units was enacted in 1996. Under this Law, instead of the former 34
municipalities, the country was divided into 123 municipalities, with the City of
Skopje as a special unit of local self-government.
At the end of the ‘90, the Republic of Macedonia was rated as a “highly centralized
country” by the Council of Europe6, indicating the following areas which required
improvement:
1. There is a very close overlap between the government departments and
the municipalities. The municipal powers remain extensive, but they are
distributed in a way that makes the municipalities appear to be dependent
on the central government.
2. The municipalities are not independent financially. The level of their
expenditures is set by the central government, in line with its perception
of their needs. Expenditures are approved only if the central government
considers it possible, and irrespective of the level of "own resources".
The central authorities claim any budgetary surpluses.
Taking into consideration these suggestions for further action, the Government of the
Republic of Macedonia enacted "The Strategy for Reform of the System of Local Self-
government" in November 1999, synthesizing the aims of the Reform. A Ministry of
Local Self-government was established earlier and was designated as the competent
institution for coordination of the activities for implementation of the Strategy. This
reform was to be neither simple nor fast, and it was to correlate with other reforms
undertaken at the same time.
The basic goal of the Strategy was the decentralization of power in Macedonia, while
"simultaneously strengthening the rule of the local self-government as an essential
attribute of a modern and democratic state". The objectives of the Strategy were to
operationalize the Constitutional position of local self-government and to enable the
desired changes, as well as to reassess the parameters for the existence of 123
municipalities.
Despite the planned natural and evolutionary pace of implementation of the Strategy,
the process was accelerated. This was mainly due to the conflict in the country in 2001
6
For more information see: Ministers' Deputies Documents/Monitor (2001) 3 revised 2, 20 April 2001, Council of Formatted: Right: -0.04"
Europe, Committee of Ministers.
6
and signing of the Ohrid Framework Agreement. Decentralization is the cornerstone of
the Framework Agreement, and this has led to amendments to the Constitution.
Following these events, a new Law on Local Self-government was enacted on 29th of
January, 2002. This Law provides extended competencies of the local self-government
units. The enactment of the Law was accompanied by a three-year Action Plan, in
which main steps have been emphasized as well as the processes of the future reforms
in the local self-government outlined.
The intensification of the decentralization process required the establishment of a
stable legal framework. This was aimed to result in the building of a local self-
government system compatible with the European standards and corresponding to the
needs of the country. Therefore, in February 2003, the newly elected Government
enacted the Operation Program for the Decentralization of the Authority due to be
implemented in 2003 and 2004, where the following issues were defined:
amendments to the laws and regulations that currently represent an
obstacle for the municipalities in accomplishing their competences in
accordance with Article 22 of the Law on Local Self-government;
the areas where, as a first phase of the process of decentralization, the
transfer of competences can be done in the simplest and fastest way and
without significant problems, and based on the principles defined by the
Law on Local Self-government;
adoption of the laws on territorial organization, local self-government
financing, local elections and the organization of the City of Skopje;
the need for a new division of property within the decentralization
process and creation of provisions for the municipalities to perform their
competences without any obstacles.
2.3. LEGAL SYSTEM AND PROCEDURES
Based on the new Law on Local Self-government (2002), and in accordance with the
amended Constitution and consistent with the European Charter on Local Government
of the Council of Europe7, the decentralization of governmental authority to local
government units was provided.
This Law was a milestone in terms of defining the general scope of fiscal
decentralization. The general municipal responsibilities foreseen in Article 22 of the
Law on Local Self-government, such as urban planning, local economic development,
environmental protection, sports, and culture, bring the functions of municipalities in
Macedonia closer to those of municipalities elsewhere in Europe.
The August 2001 Ohrid Framework Agreement, among other activities, stipulates that
municipal boundaries be revised within one year of the completion of a new census
that is to be carried out by end-2002.
7
Council of Europe Charter on Local Government was enacted in 1985, Macedonia signed it in 1996
and the Parliament ratified it in 1997.
7
The new Law on Territorial Organization (2004)8, defining the areas of the new local
self-government units, was expected to consider the fact that much of the
administrative structure for tax administration and expenditure management on a local
level corresponds to the structure of 34 municipalities that existed before 1997. On the
expenditure side, many municipalities still rely on one of the 34 local offices of the
Ministry of Finance for recording their expenditures, and on the 34 regional offices of
the Public Revenue Office for recording and collecting their tax revenues. Thus, it
could have been expected that the administrative capacities at local level would be
among the key criteria for determining the number of the new municipalities and the
functions and responsibilities they can effectively assume.
Despite this reasoning, the new Law on Territorial Organization, enacted in August
2004, administratively divided the country into 84 municipalities, with the City of
Skopje as a special unit. So, the principle of efficiency was traded for the principle of
democracy. This raised the most fundamental question: whether and how the new 84
municipalities are to be viable economic entities, in a situation where most of them
currently lack capacity for significant own revenue collections.
The Law on Local Self-government Units Financing (2004) allows for practical
implementation of the new decentralized concept of local self-government, regulating
the financial autonomy and the overall financing of the municipalities. It sets out a
phased approach for decentralisation of financial resources to municipalities that
would accompany the decentralisation of the competencies.
The competencies/functions are the main indicators for the role and importance of the
local self-government units (the list of municipal competences, according to Article 22
of the Law on Local Self-government is given in Appendix 1). The competencies of
the City of Skopje are defined by the Constitution, the Law on Local Self-government,
the Law on the City of Skopje, and by other special laws.
The new Law on the City of Skopje9, defining the issues of special importance for the
City of Skopje, was enacted in 2004. According to Article 10 of this Law (see
Appendix 2), the City has been assigned the following competencies: land
management; environmental protection; local economic development; communal
affairs; culture; education; sports; social and children protection; health protection; fire
protection; and inspection. In this context, the City’s bodies and institutions, within the
framework defined by the Constitution and by law, have a right to undertake activities
of local importance that are not within the competence of the bodies of central
government.
Having in mind the fact that local self-government is involved in many activities, the
articles concerning local self-government are also contained in the laws regulating
those activities, such as: the Law on Construction Land, the Law on Construction, the
Law on Public Enterprises, the Law on Communal Activities, the Law on Communal
Fees, the Law on Waste, the Law on Public Cleaning, Collection and Transportation of
Communal and Solid Technological Waste, the Law on Waters, the Law on Public
Roads, the Law on Civil Servants and others.
8
Official Gazette of the RM no. 55/2004
9
Official Gazette of the RM no. 55/04
8
III. THE PHASED APPROACH TO DECENTRALIZATION OF
COMPETENCES AND ITS WEAKNESSES
3.1. RECOMMENDED PHASED APPROACH TO DECENTRALIZATION OF
COMPETENCIES
To address the potential risks of decentralization for the fiscal and macroeconomic
sustainability, the decentralisation of competencies and the accompanying fiscal
means from central to local government is envisaged through a phased approach.
The Law on Local Self-government Units Financing (LLSGUF) sets the
decentralization phases, where, in each phase, specific expenditure responsibilities in
different sectors are decentralised to the municipalities with adequate financial
resources.
Phase Zero10, according to the recommendations of the international financial
institutions that were involved in the preparation of the fiscal decentralization in the
country in an advisory role, was to be envisaged as a restructuring and consolidation
phase, as to put in place the minimum necessary capacity for financial management at
the municipal level.
10
The LLSGUF does not envisage a Phase Zero for implementing the fiscal decentralization.
9
From the municipal financing point of view, this phase was supposed to strengthen
incentives and capacities for fiscal revenue collection by the municipalities. It was
perceived to create such preconditions with elimination of the limitation to the own
revenues and the equalization scheme, that were elaborated in detail earlier and with
enabling the municipalities to determine and collect their own revenues by themselves.
A number of institutional arrangements were supposed to accompany the initial phase,
such as: enforced budget preparation procedures and improved budget planning;
strengthened municipal budget management; strengthened internal expenditure control
mechanisms; and enhanced reporting of municipal budget execution to the central
government.
With the Phase One, the municipalities were to assume assets and related maintenance
costs of the decentralized responsibilities under the Article 22 of the Law on Local
Self-government.
Phase One was supposed to be financed largely from the higher municipal own
revenue collections achieved in Phase Zero. Additional revenue-sharing scheme is
introduced, based on the personal income tax and the value added tax, with funds
being distributed to the municipalities using a distribution formula. The maintenance
costs of the decentralized institutions are to be financed by separate earmarked grants.
This phase was supposed to go further with the institutional building within the
municipalities, by enhancing the managerial capacities, expanding employment of
financial officers, appointing municipal internal auditors, and developing and adopting
formal procedures to initiate follow-up on State Audit Office reports.
Within the Phase Two, the municipalities were to assume decision-making power
(such as hiring and firing of teachers) and control over financing salaries of employees
within the decentralized responsibilities financed through block grants. This phase is
supposed to focus further on expanding human resource capacities and improving the
budget system.
The phased approach to the decentralized responsibilities of the municipalities under
the Article 22 of the Law on Local Self-government is shown in the table bellow.
Table 1: Phased approach to decentralizing expenditure responsibilities from central Formatted: Justified
government to the municipalities
Combined Phase I (Opening Phase) Phase II
Functions transferred
Transfer of Assets and Maintenance Costs Increase Fiscal Responsibility
Primary and secondary education Primary and secondary education
Schools: Ownership and maintenance costs; Full management of budget, including
Participation in preparation of curricula wage bill for teachers
Social welfare Social welfare
Kindergartens and nursing homes: Management of social centers
Ownership & maintenance costs;
Fire protection
Fire protection Responsibility for financing wages
Assume responsibility for fire department units
10
Culture Culture
Management of cultural institutions
Facilities: ownership and maintenance costs, followed by
financing of programs of local interest Responsibility for financing wages
3.2. THE TRANSITION FROM PHASES AND TRIGGERS
The transition from one phase to the next logically was supposed not to be bound to a
rigid timetable. It was supposed to occur only if certain conditions are in place to
ensure that decentralization will achieve its stated objectives at central and local level.
Article 45 from the LLSGUF sets the following actions to be undertaken by the central
government and municipalities, as to enable the transfer of grants in Phase I:
No later than April 30, 2005, the central government has adopted the by-laws
for the methodologies for distribution of the VAT and the capital and
earmarked grants;
The Ministry of Finance has informed the municipalities about the VAT
revenues and the capital and earmarked grants revenues planed for distribution
with the State Budget;
No later than July 1, 2005, the municipalities have started to implement a plan
to restructure the arrears from debts with suppliers and other creditors, which
originated before December 31, 2004. The Ministry of Finance will need to
provide the framework for these restructuring operations;
At least 90% of all municipalities with at least 90% of the citizens in
Macedonia , have employed:
- at least 2 officers qualified for financial management, budget planning,
budget execution, accounting and reporting;
- at least 3 officers qualified for tax administration.
More stringent requirements are envisaged to be fulfilled by the municipalities, as to
enable the transfer of block grants in the Phase II:
meet the conditions required for Phase I indicated above;
has a sufficient human capacity for financial management;
shows positive financial results in a period of at least 24 months;
it has a track record of at least 24 months of on-time and accurate fiscal
reporting as certified by the Ministry of Finance;
it has no arrears to suppliers or any other creditors exceeding those ordinary
terms of payments that are customary on the market.
11
Further, these responsibilities would not be transferred automatically rather the
municipalities need to request them from the line ministry.
3.3. THE WEAKNESSES OF THE ENFORCED PHASED APPROACH
Despite the recommendations from IMF and other international financial institutions
and donors for the sequencing of the fiscal decentralization phases, the Government
decided to enforce the Phase Zero and Phase One as a single phase, thereby not
allowing the municipalities to work on their restructuring and consolidation11. This
phase zero was supposed to strengthen incentives for municipal revenue collection;
increase their revenue potential; and improve municipal revenue raising capacities,
enabled through abolishing the grant from surplus revenue and through allowing
municipalities to collect and keep 100% of their own revenue from their current tax
bases. In practice, the abolishment of the above restrictions came into force on July 1st,
2005, coinciding with the beginning of e Phase One, that is, assuming the
decentralized competencies. Consequently, the desired increase of municipal tax
incentives, potential and capacities could not have happened upfront the acceptance of
the delegated competences with the Phase One. As a result of this pitfall, most, if not
all of the municipalities have failed to put in place the minimum necessary capacity for
financial management, budget planning and execution, financial reporting and to
establish a system and develop capacities for recording and collection of their own
revenues.
Further, the LLSGUF does not envisage the activities in the Phase I as preconditions
for the start of the fiscal decentralization in each of the municipalities, thus resulting
with transfer of competencies at July 1, 2005 from the central government to all 85
municipalities in the country12. The absence of actual assessment of the capacities of
each specific municipality for assuming the decentralized competencies may result in a
potential financial hazard in some of them, due to the fact that part of them lack the
basic capacity for planning and executing their budgets and for financial management
and reporting.
Finally, the Law does not specify what will happen to the decentralized institutions, if
some of the municipalities never succeed to meet the preconditions for the Phase II –
will these institutions remain in the ownership of the local government together with
the obligation of the municipalities to finance only their maintenance costs, or will
they be returned to central government management and financing. If the latter is
applied, parallel systems for managing the institutions within the decentralized
competences, would be created.
11
The activities foreseen for this phase were carried out in four pilot municipalities and according to Formatted: Right: -0.04"
the initial assessments they had positive effects.
12
Although a special Government Commission was established for assessment of these conditions,
their fulfillment does not represent a trigger for entering the Phase I of the fiscal decentralization.
12
IV. THE INTERGOVERNMENTAL FISCAL RELATIONS PRIOR
AND AFTER THE FISCAL DECENTRALIZATION
This section focuses on the intergovernmental fiscal relations prior to, and after the
implementation of the new LLSGF. It also aims at identifying the weaknesses of the
legal framework and institutional arrangements of the reformed system.
4.1. FINANCING OF THE MUNICIPALITIES PRIOR TO THE FISCAL
DECENTRALIZATION
With the independence in 1991, Macedonia started building its own fiscal system,
regulated with the Law on Financing the General Social and Common Needs (1991)13,
13
The Law on Financing the General Social and Common Needs enacted in 1991 was further
amended in 1992 and 1993
13
later in 1993 replaced with the Law on Budgets14, then the Law on Self-Government
from 1995, and the Law on Caps of the Own Revenues.
The period was characterized by the following specifics, which hindered the ultimate
functioning of the local government: the local taxes and fees were administered and
collected by the central government authorities, the rates for the taxes and fees were
also set centrally, the spending policy of the municipalities was limited as they did not
had flexible discretionary right, and most of the funds received by the central
government were earmarked. In addition, most of the transfers from the state agencies
and funds were done without consultation and not based on predefined criteria or
formula calculation.
Based on Article 5 of the Law on Budgets15, the former synthetic revenue
classification was dividing the municipalities’ revenues into: own revenues (property
taxes and communal fees and charges), non-tax revenues, capital revenues, transfers
and donations.
For the purpose of this study, and in the context of elaboration and analysis of the
concept and effects of the reformed intergovernmental fiscal relations, this section will
focus on the municipal own revenue sources and transfers, as well as on the concept of
borrowing. The other revenue sources, such as the non-tax revenues and capital
revenues will be very briefly addressed in the subsection 4.2., with a single purpose to
fully exhaust the revenue sources under the reformed system.
4.1.1 Genuine Revenues
According to Article 5 from the Law on Budgets, the municipal genuine revenues use
to be divided into tax revenues and revenues and from specific fees - communal fees.
Prior to the decentralisation, the taxes and fees were recorded, collected and
distributed centrally, through the Public Revenue Office, the Ministry of Finance.
Because of the economic crisis in the beginning of the 90’s, a system for financial
limitations of the budget and funds was adopted, as a measure for public expenditures
control.
Under the law, local own revenue pertain to local governments 100 percent, but this
only applied to the local sector as a whole, not to individual municipalities. As
mentioned previously, according to the Law on Budgets, the genuine revenues of each
of the municipalities were limited at a certain percent of the collected revenues.
Additional limitation measure was envisaged with the Law on Limitations of Own
Revenues for Financing Public Needs, determining a peculiar system of inter-
municipal redistribution effected by the government of the RM by which parts of the
local taxes were “seized” from fiscally stronger municipalities and redistributed to
“weaker” municipalities. The funds for equalization were obtained by limiting the
budget size of each municipality, and municipal revenue collected beyond the
predetermined ceiling (“surplus revenue”) was temporarily “confiscated” at 100
14
The Law on Budgets enacted in 1993, further amended in 1994, 1996, 2000, 2001, 2002 and 2003
15
This Article from the Law on Budgets was canceled with entering into force of the new LLSGUF.
14
percent16. This mechanism must be considered arbitrary because the fixing of the
budget ceiling lacks a clear methodology, and no relevant criterion for setting these
limits could be identified. Moreover, the budget ceiling directly determines the
“surplus revenue” of each municipality, and hence the total amount available for inter-
municipal redistribution.
The distribution mechanism of the funds was just as unclear as the process of its
collection. The Ministry of finance claims to use criteria such as budget deficit and
budget performance, which would make the grant (a “gap-filling” transfer), albeit a
partial one. But other criteria might also be used, including political considerations.
These revenues, prior to July 1st 2005, were administered by the national public
revenue offices (PRO) that had no interest in collecting the fees whose revenue goes to
municipalities. There was no interest neither within the City’s administration, since
these revenues were also subject to limitations under the system of inter-municipal
redistribution. So the fees collection was almost arbitrary and haphazard. Additional
problem was created with the un-uniform performance of the PRO across the different
municipalities. Even though Public Revenue Office represents a central government
agency, and should apply same standards in each of its branches, this has not been a
case for the municipal taxes. The average deviation from the mean compliance rate for
all regions is 20%, 17% and 14% respectively for year 2000, 2001 and 2002. This is
another burden to existing regional disparities. The average distance of the mean
compliance rate for communal fees for all regions are 21%, 27% and 17% respectively
for year 2000, 2001, and 200217.
4.1.2. Transfers
Transfers are the second significant source of local revenues18. All transfers in the
former system mainly could be classified as general transfers or those for specific
(special) purposes.
The general transfers are the transfers from the state to the municipalities for
equalisation, the so-called general fiscal support. Only the municipalities that are not
able to finance the budget consumption by its own sources should have the right of use
16
In practice, only few municipalities were succeeding in collecting yearly revenues above the
predetermined ceiling. e.g. in 2002 only the City of Skopje and Gevgelija. The largest contributor to
this system was the City of Skopje.
17
Bekim Imeri, MPPM, Capstone Seminar “Equalization in the Law on Local Self-Government
Finance” (LLSGUF), University of Pittsburg, 2005
18
With the former classification, both the capital transfers from the Road Fund and from the central Formatted: Right: -0.04"
budget for capital projects were recorded as transfers. The proportion of the transfers in the total
collection of revenues in the City of Skopje in 2004 was 7.88%.
15
from those transfers. However, this was not always the case in practice. Namely, this
fiscal support has been distributed by discrete government decisions.
All other transfers were specific. They are allocated to the municipalities, directly by
the central budget or from the non-budget funds, according to concrete programs.
1. The biggest single source of transfers is the Agency for Underdeveloped Regions
investments. The Agency was making the authorization for assets on the base of prior
accepted investment programs. For the realization of the projects for economic
infrastructure, it was approving finances for buildings, modernization, and
reconstruction of local roads, building and reconstruction of local water-supply
system, building the sewage system, air pollution, micro accumulations etc., in the
proportion of 80% for investments in specific regions and 60% for the investments in
rural centres. For investments in local roads and local water-supply systems, the
invested proportion can be increased by another 20%.
2. The Road Fund: The grants for local roads and streets were provided by the Law
on public roads (Official Gazette of the RM no. 26/96, 40/99, 96/00 and 29/02), and
the Road Fund transfer them to the municipalities according to the Annual programs
for construction, reconstruction, maintaining and protection of local roads and streets
adopted by the municipalities. Some concerns by the municipalities related to the
manner of their distribution and registration can be considered related to this type of
transfers, too.
3. Program for Water Supply With the Government acting for building the water
supply systems and the sewage systems, the Ministry of Transport and
Communications has been authorized to transfer budget assets from the Budget of this
Ministry to the LSGU. Those assets are transferred based on criteria previously
published and publicly announced on a tender for financing project programs for this
purpose.
4. Other Programs, such as: The Program for Physical and Detail Urban Plans
(adopted annually based on the Law on physical and urban planning and consisting of
the total amounts and the specific purposes), the Program for Village Revitalization
and the Program for Village Electrification, Programs for Mass Media in Cities
(current transfers to the local public media, implemented through the Information
Agency, distributed to the municipal local public media in fixed amounts without
appropriate explanations) and the transfers related to projects (including projects for
building roads) financed with assets from the sale of “Telecom”, submitted to the
Budget of the RM for the years 2001, 2002 and 2003.
4.2. FINANCING OF THE MUNICIPALITIES IN THE REFORMED SYSTEM
The fiscal decentralization in Macedonia is envisaged and enforced with the Law on
Local Self-government Units Financing (LLSGUF). Several key modifications of the
former municipalities’ financing system are the focal factors for this process.
16
A starting point for the fiscal decentralisation is the removal of the cap on local own
revenues19, as one of the objectives of decentralization is to increase the collection
level of local own revenues. This came into effect with abolishment of certain articles
from the Law on Budgets, starting from July 1st, 2005.
Further, centrally administered equalization scheme which was skimming off in full
the excess of municipal taxes collected over a politically predetermined budget size
according to the Law on Limitations of Own Revenues for Financing Public Needs
(LLSR)20, is also abolished from July 1st, 2005. The fact that all revenue beyond an
externally determined ceiling will no further be appropriated for redistribution is
envisaged to reinforce the interest of local governments to strengthen their tax
potential.
The additional funds from the Personal Income Tax and VAT distribution, as well as
the block grants from the central budget, are supposed to assist the local authorities in
financing the activities under the decentralised responsibilities.
According to the Law on Local Government Financing municipalities are to be
financed by revenues from its own sources (local taxes, fees and charges, property
revenues, donations, penalty fees and revenues from citizens contributions); grants
from the Central budget and the budget funds (transfers from the VAT collection;
earmarked grants; block grants; capital grants, and grants for decentralised
responsibilities); revenues from the Personal Income Tax, and from borrowing.
The Law on City of Skopje further determines the share of the collected taxes and
fees, which belongs to the City of Skopje and its municipalities.
4.2.1. Genuine revenues
With the fiscal decentralization in the country and the reformed intergovernmental
fiscal relations, the property taxes and communal fees are assigned to the local
government with authority to set the tax base, collect them, and set the rates within a
range defined with laws.
With decentralization of the responsibility and authority for tax and fees
administration form central to municipal level, the level of municipal own revenues is
expected to increase significantly. However, this will not going to happen without
sufficient human capacity in tax and fees assessment and collection. According to the
LLSGUF, staff of the regional PRO offices should be transferred, and become part of
the local administration21. Yet, the extremely limited number of transferred tax
administrators, and the fact that none of them has ever worked on enforced collection,
puts the City in a position of having the right to enforce collection, without having the
tools for performing that. Taking this into consideration, and given the present
19
The Law on Budgets, Article 5, limits the own revenues of the City of Skopje at 38.5% of the collected ones.
20
The Law on Limitations of Own Revenues for Financing Public Needs is subject to yearly adoption together with
the State budget. Last time it was adopted in 2004 together with the state budget for 2005, with a timed
implementation until July 1st, 2005, thereby freeing municipalities’ revenues for the second half of 2005.
21
According to the Government decision, 11 officers from the Regional PRO Office are to be transferred as tax
administration within the City of Skopje. Those 11 employees are to work on tax assessment, collection and
administration for the City of Skopje and its 10 municipalities (as a consolidated tax administration).
17
deficiencies in administering these taxes, the City will need to invest much of a time,
energy and recourses in building effective and efficient local tax administration.
Further, according to the new legislation, the rates of property taxes and communal
fees are set by the municipal councils within quantitative ranges, defined by law.
However, when introducing such concept, it is especially important to define the upper
legal limits at sufficiently high level, thus leaving enough space for the municipalities
to set the tax rates in accordance with the goals of the local fiscal policy. Without such
possibility, as in the case of Macedonia, it could not be said that the local self-
government “enjoys” fiscal autonomy.
4.2.1.1. Tax Revenues
The local taxes defined with the Law on Property Taxes22 (2004) are: property tax,
inheritance and gift tax and property transaction tax. Under the new system, the tax
rates are determined by the City’s Council, within the range prescribed with the law.
The structure of the city’s tax revenues is given in Appendix 3.
The property tax would have to be the backbone of the local system of own resource
mobilization, but unfortunately this is not the case: the transactions tax is by far the
most important local tax, because it can be better enforced with little administrative
costs. In 2004 the property tax contributed only 0.40% of total city’s revenues. The
share of the transactions tax was 5.83%. The tax on bequests was negligible
contributing only 0.19% of total local taxes. There were several reasons behind this,
some of which were malformations incorporated in the former taxing system
explained previously. More important, some of these obstacles for adequate and
sufficient level of assessment and collection of the property taxes are incorporated in
the reformed system.
Property Tax
It is basically sound to base the system of own municipal taxes on the property tax23.
However the new Property Tax Law is deficient in that it defines an extremely narrow
tax base. In particular, besides the standard exemptions and deductions (government
property, public land, property of churches, charities, cultural and educational
premises, diplomatic representations), it also allows for exemptions which seem to be
overly generous (commercial buildings in agriculture and business premises used by
the taxpayer to perform an activity, excluding administrative buildings).
Under the decentralized system, the municipalities have been assigned the right to set
their own tax rates within limits determined with the Law on Property Tax (0.1% -
0.2%), which is expected to enhance the accountability of local governments. The new
22
Official Gazette of the RM no. 61/04
23
The tax base includes nonagricultural land, residential buildings or apartments, business premises,
administrative buildings, buildings or apartments for vacation and recreation, garages, and other
building structures. Property tax is also due on ownership of movable property for: passenger motor
vehicles over 1.8 liter motor capacity, busses, freight motor vehicles, freight trailer vehicles, tractors,
combines, floating vessels and aircrafts. The tax is levied on the basis of the property’s market value.
18
tax rate for the City of Skopje has been adopted on the level of the former national tax
rate which was 0.1%;
Perceived threats for the municipal tax potential:
- the exclusion of commercial premises from the tax (especially important for the
City of Skopje where it could represent a substantial revenue source based on
economic activities);
- the cadastre that registers all immovable properties is incomplete and inaccurate (it
often fails to record the physical characteristics of buildings and other structures –
such as the number of floors, the economic use of the land, and ownership). The
registration is further complicated by unsettled questions of ownership.24
Currently it functions mainly on the basis of voluntary registration;
- the Law on Property Tax envisages constituting local Commissions (operational
bodies) for estimating the market value of properties according to the new
Methodology for assessing the market value of the real estate25 (2005). However, it
represents a completely new competency for the local administration, which has to
immediately be capable of gathering knowledge and capacity for performing the
function, while at the same time doing it.
Property Transactions Tax
The tax applies to the earnings from sales of real estate and rights, as well as to
exchanges of real estate and on different modes of acquiring real estate without
financial compensation26. There are a number of exemptions that are standard
(transactions among governments, acquisition by diplomatic and consular missions,
sale of real estates in pre-allotment and expropriation procedures), but others lead to
unwarranted privileges and may even encourage tax avoidance schemes (real estates
invested in the capital of corporations and commercial enterprises). The local property
tax commissions are to examine the contractual price of the transaction, based on the
above mentioned Methodology.
The municipalities have the right to set their own tax rates within limits defined with
the Law on Property Transaction Tax (2% - 4%), which should enhance the
accountability of local governments. The new tax rate for the City of Skopje has been
adopted on the level of the former national tax rate which was 3%.
Inheritance tax
The inheritance tax is paid on real estate; the local incidence is on the residence of the
legal entity or physical person who inherits the property. The tax base is the market
value of the inherited or endowed property, at the moment of imposing the tax,
reduced by the debts and expenses of the property subject to taxation. The rates on
inheritance and endowment tax are 3% for the second line of heritage and 5% for the
third line of heritage. Heirs or recipients of endowments of the first line of heritage are
exempt from tax.
24
Yugoslavia used to operate with a property transactions tax rate of 25 percent, a hefty disincentive to transfer
and register properties in an orderly fashion. This resulted in a backlog of unsettled property claims. The question is
further complicated by .collective property, now state property.
25
Official Gazette of RM no. 50/2005
26
The tax base is the market value of the real estate at the moment the tax liability is incurred.
19
4.2.1.2. Communal fees
The communal fees, according to the Macedonian classification of specific taxes, are
charged for the rights, objects and services of public character. The payment of
Communal fees is regulated by the Law fee for Temporary Stay (Official Gazettes of
the RM no. 19/96 and 26/02) and the Law on Utility Fees (Official Gazette of the RM
no. 61/04).
The rates of the communal fees are set by the municipal council, within a range
stipulated with the Law on Utility Fees. The rights, objects and services of public
character subject to communal fees are presented in Appendix 4.
The participation of those revenues within the City’s total revenues is 3.28%. Its
participation is insignificant, due to the reasons mentioned previously, mainly
referring to the inefficiently records of the fees payers and the inadequate
administration of these fees within the former system by the PRO.
Under the new legislation, those revenues are to be assessed, collected and distributed
locally. This is expected to activate the anticipated enormous idle potential in all type
of fees, especially for the displaying announcements, messages, and advertisements in
public places; for the possession of showcases for displaying goods outside premises;
the use of parking lots; the use of squares and other urban spaces in towns,
municipalities and settlements to display objects, organize exhibits, entertaining
shows, etc.. Due to the insufficient revenue analytics carried out from the PRO
regarding these fees, they are shown in the following table as “other communal fees”.
The distribution of the communal fees between the City of Skopje and its
municipalities is stipulated with the Law on the City of Skopje. Some of them, such as
the fee for utilising pavements in front of the premises for carrying out business
activities, are distributed to the City of Skopje and its municipalities according to the
responsibility for the particular premises, while some are shared (70%-30%) between
the City and its municipalities (ex. fee for music in public places ), or (50%-50%)
between the City and the Common Fund (the fee for a sign or a designation of
premises and the fee for the use of roads) . The revenue from the temporary stay is
shared between the City and the Central Budget (20%-80%).
The weakness of the new Law is mainly seen in the provision stipulating application
of equal fee rates, with no respect of the different zoning. Consequently, by enforcing
a unified fee rate in significantly unevenly attractive zones, the Law enforces higher
burden on the legal entities performing business activities in less attractive zones with
accordingly lower profit margins. Finally, the Law should have had put the local
authorities in a position to locally solve this issue within their fiscal and regional
development policies.
4.2.1.3. Non-tax revenues
20
It is also essential for municipalities to develop their own revenue raising powers for
non-tax revenues, as they are essential parts for municipal finance. This requires a
thorough analysis of the costs of services and standardized price setting for user
charges. The new LLSGUF was supposed to distinguish more clearly between fees
(near cost coverage), user charges (price equivalents for the provision of specific
municipal services or the use of public infrastructure - potentially profit-oriented),
licenses and concessions (regulatory function), and fines (regulatory).
The most significant source of non-tax revenues in the City, with a share of 62% in the
total revenues and being the most significant source of revenues in general, is the user
charge on construction land. The revenues collected based on this fee are earmarked
for building the primary infrastructure in the City, that is, they are allocated to execute
the contractual obligations towards the investors who pay the charges. The Council of
the municipality determines the amount of the fee, according to the facilities to be
built on that ground.
4.2.1.4. Capital Receipts
The capital revenues, according to the classifications, include revenues from the sales
of municipal property and capital transfers from governmental and nongovernmental
sources (capital grants or donations)27. Under the new system of budget planning and
execution, these revenue instruments should be exclusively assigned to the capital
budget of the municipality, given their extraordinary nature or their specificity as an
instrument to finance local investment. The formal separation of a current and capital
budget serves to facilitate long-term budget planning and commitments, although both
parts of the budget also have to be treated integrally for macroeconomic and
transparency purposes.
In the previous period this type of revenue was insignificant for the local budgets. e.g.
The participation of those revenues in the total revenues of the City budget in 2004
was only 5.52% (Please see Appendix 3). One of the main reasons being the fact that
Macedonian municipalities do not possess or inherit public ownership of property
which can be sold or rented (for example: land, buildings, etc.). This revenue can be
collected in near future, after the accomplishment of the decentralization process,
according to which the municipalities will take over the ownership of schools assets,
sports objects, social and cultural assets.
4.2.2. Transfers (grants from the central budget and its funds)
The transfers from central to local government, in principal, serve to protect the fiscal
system from horizontal28 and vertical imbalances29. Some of the designated transfers
27
The capital transfers for 2004 from the Roads Fund and from the central budget were recorded under transfers.
28
Horizontal imbalances occur due to the differences in the capacity for raising own revenues across
municipalities, depending on the distribution of their assigned tax bases, and also because different
regions may face different costs and demand pressures.
29
Vertical imbalance refers to the gap between expenditures accrue for the responsibilities that local
government have been assigned and the revenue yields by term scuba national government own source
21
to the local sector in Macedonia are unconditional in their usage, such as the transfers
from the personal income tax and value added tax which will be divided on the basis
of share of the revenues collected on a national level, while the other transfers are in
the forms of grants for strictly defined use.
The new LLSGUF sets out five instruments to procure resources to municipalities—
apart from their own resources. The classification of transfers follows a conventional
division into: transfers from the VAT; “earmarked grants” (or “special purpose
grants”); “block grants” (or “specific program grants”); “grants for delegated
competencies” (or “cost restitution”) and “capital grants”.
a) Value-added tax (VAT): has several advantages which make it suitable for
local sharing: the VAT revenue reflects the macroeconomic development within the
municipality, so that it would link municipal resources to the state of the economy;
and further, due to consumption smoothing, cyclical fluctuations of the VAT are less
pronounced than for income taxes, hence it is expected to contribute to stabilizing
local budgets.
The significant differences in the tax bases among the municipalities can potentially
result in inefficient and unfair fiscal decentralization. Due to these reasons an
equalization scheme is introduced, enabling the municipalities to finance a reasonable
level of public services.
Since it is not imperatively stated with the LLSGUF, it is questionable whether the
VAT transfers in Macedonia represent an instrument for equalization within the
reformed system.
The LLSGUF envisages that 3% of the national VAT be allocated to the local
government sector overall. This revenue should be distributed to local government
according to a transparent formula and objective criteria, in accordance with the
Methodology for Distribution of VAT Revenues (2005)30. Despite this commitment to
an objective approach, the Methodology sets out absolute percentages of these
revenues to be distributed to particular municipalities, based on ambiguous criteria,
thus making the grants on the bases of VAT one of the most controversial inputs in the
fiscal decentralization.
In accordance with the Methodology for distributing VAT revenues, the City of
Skopje has been allocated 0,12% of the total VAT revenues set for redistribution (on a
consolidated basis, for the City of Skopje and its municipalities this percentage is
0,29%). This percentage is significantly lower compared to the one based on the
objective per capita criteria if it was adopted31.
b) Earmarked grants: They are intended for concrete activities in the Phase I of
the decentralization. More specifically, for maintenance costs in the decentralized
institutions. Thus, the grant is targeting the institution, not the function. The size of the
of revenues. It can be measured by the participation of the transfers in the total local government
expenditure.
30
Official Gazette of the RM no. 54/2005
31
More than 25% of the total population of the Republic of Macedonia lives in the City of Skopje.
22
grants should have been determined after a thorough evaluation of the total costs of
these programs, and the horizontal distribution of these funds was to be developed in
cooperation with the respective line ministries and local governments and be based on
objective criteria relating to each particular decentralized function.32 Despite this
determination, the grants size was set by the line ministries alone, with no
participation of the local authorities or representatives from the decentralized
institutions, and solely on the base of historical costs (even the historical size of the
cost is highly questionable). The local authorities call for revision of the grants,
especially in the area of education. If not revised, they will put into question the
further ownership of the decentralized competencies by the local government.
c) Block grants: The LLSGUF makes a reference to the Law on Local Self-
government (Article 22), which renders them program-specific for social welfare,
education, culture and healthcare in the Phase II of the fiscal decentralization. These
grants are entirely program-related and tied to the decentralization of the payroll
responsibility.
d) Grants for delegated competencies involve the case where the central
government compensates the local government for taking over a central government
function. Where local governments act as agents of the central government, the
“principal” should indeed shoulder or share the costs of these programs (the
connectivity principle). Full funding is appropriate where the mandating government
has full control of the administration of the program, which is seldom the case. Where
the central government cannot exercise control, local governments should be required
to share some costs in order to create incentives for containing the local volume of
spending and to support the targeting and the effective administration of the program.
It implies however that local governments have sufficient own resources to take on
their share.
e) Capital grants: envisaged for financing investment projects, according to
Government Program.
f) Personal income tax (PIT): Despite the fact that the legal provisions are
unclear in respect of classification of the PIT as a transfer, the PIT de facto represents
a transfer from the central to the local government on the base on revenue sharing of
the PIT collected on a national level.
With the decentralization, the municipalities will obtain a portion of 3% of the national
PIT collected from the residents of their jurisdiction33. The horizontal distribution of
the tax revenue is seen as an advantage of the City of Skopje, as such distribution
mirrors the level of local economic activities. Despite the high unemployment rate, the
City of Skopje, in comparison with the rest of the municipalities across the country is
considered as more economically prosperous municipality. In a long run, it is also
expected to increase the link between local public services and taxes payable.
32
Earmarked grant for primary education, for example, was supposed to be based on the number of students in
school age, the standard class size, the number of schools, a standard curriculum translated into manpower required
to realize it, a markup for administrative and operating costs, etc.
33
For the City of Skopje, this portion is collected directly in the Common Fund, out of which the City receives Formatted: Right: -0.04"
20%, and the City’s municipalities are sharing the rest 80% by defined formula.
23
The major weakness of the legal framework regarding the PIT relates to the
participation of municipalities in the PIT, based on the pure origin principle. The
origin principle will inevitably result in a substantial decrease in the City’s PIT base,
as many of the registered employees in the municipality of Skopje are residents of
other municipalities. Moreover, the residence principle may also be contested because
the taxpayer will not only consume local public services at the place of his residence,
but also where he/she works. This could eventually lead to a horizontal sharing of the
yield among the municipalities of residence and place of work.
Some experts contest the origin principle from opposite reasons, stating that it does
not contribute to decrease the horizontal imbalances among the municipalities.
However, it should be noted that PIT has never been planned as an equalization
instrument in Macedonia, but as an instrument for strengthening the financial power of
the municipalities and for disabling a potential vertical imbalance.
4.2.3. Borrowing
Borrowing by public sector agencies is always fraught with risks as such long-term
commitments might exceed the agency’s ability to serve the debt, and it could induce
financial hazard. This is the case in particular for municipal borrowing as long as
municipal officials are not sufficiently experienced for debt management. The market
might not be able to assess the creditworthiness of municipal governments and
constrain municipal lending where creditors can reasonably expect the central
government to bail out municipal debtors.
Therefore, the LLSGUF (Articles 18-21 and 50) determines the conditions for access
to the capital market in strict terms, which serve to eliminate possible risks of
destabilizing municipal finance:
Municipalities may borrow from foreign entities only with the approval of the
central Government following an opinion by the Ministry of Finance;
The supplier arrears with 90 days maturity automatically are counted as the
municipal debt;
The total amount of short term debt within a fiscal year should not exceed 20
% of annual current revenues;
The total amount of long term debt service within a fiscal year, including the
guarantees, should not exceed 15 % of annual current revenues;
The municipalities can not use local properties, employed for rendering public
services, as a pledge;
Municipalities are allowed to borrow domestically and issue guarantees
towards public enterprises, only after a 24 months track record of positive
financial reporting and with no supplier arrears due.
However, attempting the eliminate the risk of financial hazard, the Central
Government established full moratorium for local borrowing, and thus totally
neglected the fact that no local government in the world is able to perform its current
competencies and invest in capital projects at the same time, solely based on the
24
current revenues. Therefore, it would be logically to conclude that no significant
investment at local level will be carried out after the fiscal decentralization start.
V. PITFALLS IN THE PREPARATIONS AND IMPLEMENTATION OF
THE FISCAL DECENTRALIZATION
The underperformance of the central and local government in preparing themselves for
the fiscal decentralization reform and its implementation mainly relates to the
following key aspects:
25
- Adoption of a framework for settling existing municipal payment arrears. Many
municipalities have incurred substantial payment arrears up until the beginning of the
fiscal decentralization in amounts significantly bigger than their current annual
budgets. The total amount of these arrears for the City of Skopje is about Denars 600
million (almost 50% of the current City budget). Despite the obligation to prepare and
implement a debt service plan before the start of the fiscal decentralization according
to the LLSGUF, it appears that the municipalities have not undertaken appropriate
steps and have not achieved satisfactory results in this respect. As a result of this
failure to implement a plan on debt servicing by the municipalities, based on their own
revenues, there was a need to coordinate the debt servicing activities at national level
before the start of the fiscal decentralization. Several models have been discussed by
the international financial institutions and the Ministry of Finance. However, none has
been applied by the Government before the official start of the fiscal decentralization –
July 1st 2005. This has caused huge number of municipalities (at least 20 according to
the NBRM information) to enter the Phase I with blocked accounts.
- Provision of a thorough costing of decentralization. The size of the earmarked
grants should have been determined after a thorough evaluation of the total costs of
these programs, and the horizontal distribution of these funds was to be developed in
cooperation with the local government and be based on objective criteria relating to
each decentralized function. Despite this determination, the grants size was set by the
line ministries alone, with no participation from the local authorities or representatives
from the decentralized institutions, and solely on the base of historical costs (even the
historical size of the cost is highly questionable). This non-transparency opened the
door for further disputes between the two tiers of government and may potentially
endanger the whole process of service delivery by the decentralized institutions.
- Strengthening of the capacity in public expenditure management (PEM) and
budget management at the municipal level. The transfer of financial responsibilities
to municipalities should have coincided with a comprehensive PEM capacity-building
effort. The Central Government, prior to implementation of the decentralization
phases, was supposed to be aware and accept the fact that most municipalities have
financial offices that are understaffed, under-trained in budget planning and execution
and in financial reporting and under-equipped in terms of computers and outdated
software. Training and consultation in these issues were carried out intensively in
some pilot municipalities and had positive effects according to the initial assessments.
Until the day of the official start of fiscal decentralization in Macedonia, however, no
significant activities to overcome such situation were undertaken in the City of Skopje.
The City’s administration has had no success in making the central government realize
that time is extremely short, and that it will have to carry out the major part of the
capacity building effort itself.
- Provision of timely information on the grants from the central government to assist
municipal budget preparation. The efficient and competent management of the local
revenues relies on timely and accurate information on the scope and timing of the
transfers of grants by the central government according to the law for financing the
decentralized competencies. The Ministry of Finance, according to the law, was
supposed to develop and implement a dissemination mechanism under which the
central government, makes public through the Municipal Budget Circular, the amounts
26
of each year’s planned distribution and transfers of resources from the budget of the
Republic of Macedonia and the amount of resources that the government will transfer
from the central government’s programs for capital transfers to the municipalities, as
well as the criteria used for such distribution. Despite this legal requirement, the
Budget Circular from the Ministry of Finance, submitted to the municipalities in the
last minute prior to the start of the fiscal decentralization, was missing the amounts of
most of the above transfers, because some of the methodologies for distribution were
not yet adopted by the Government34. As a result, the municipalities were facing huge
uncertainty regarding the planning of budget revenues and the activities to be
undertaken in the period after the fiscal decentralization.
VI. CONCLUSION AND RECOMMENDATIONS
34
For example, the Methodology for Distribution of VAT was adopted on June 30, that is at the date
set for the adoption of the supplementary budgets of the municipalities.
27
Successful fiscal decentralization in the years ahead is essential for the economic
development of the Republic of Macedonia, and both tiers of government, the central
government and the municipalities, have a common interest in making fiscal
decentralization work.
The central government recognizes the potential for decentralization to improve public
expenditure efficiency and effectiveness. However, it also needs to safeguard the
pursuit of sound macroeconomic policies, including the country’s overall economic
growth objectives, and external and fiscal sustainability. A key challenge the central
government faces in this regard will be how to make fiscal decentralization consistent
with fiscal consolidation. Municipal governments, on the other hand, should
demonstrate that they are better placed than the central government to manage public
expenditures in line with local needs, and that they can successfully handle the
decentralised competencies.
Nevertheless, in the course of implementation of the fiscal decentralization in
Macedonia, several weaknesses of the decentralization process have been identified,
some of which are results of malformations or omissions incorporated in the legal
framework and the concept it self, while others result from mistakes in the preparation
for, and implementation of the decentralization.
In any case, there is a need to perform competent and comprehensive evaluation of the
real effects of decentralization at national level and at each municipality level. The
precise identification of the reform impact at political, fiscal, financial and
administrative level and its comparison to the impact achieved in a number of
representative countries in the region and elsewhere can be the only basis for decision-
making on the future steps by the central and local government in order to implement
the fiscal decentralization in the country in an efficient and comprehensive manner.
The concrete recommendations for further changes and improvements of the legal
framework and in the process of preparation for, and implementation of the fiscal
decentralization, are presented separately, as follows:
Recommendations for improvement of the legal framework
It is advisable to reconsider the legal provision from the Property Tax Law, which
allows for overly generous exemptions, such as the one for the business premises
used by the taxpayer to perform an activity. Elimination of these exemptions from
the Law, or delegating the municipalities the right for its enforcement with their
local policies, would contribute the municipal tax base to increase significantly.
Setting the tax rates and communal fees: The author suggests revision of the legal
arrangements and increase of the quantitative range between the minimum and
maximum legally established rates of property taxes and communal fees. These
rates are set by the municipal councils within the legally established range. When
such a concept is introduced, however, it is extremely important that the upper
legal limits are set at sufficiently high level, so that the municipalities would have
the opportunity to establish the tax rates in accordance with the objectives of the
local fiscal policy. Without such possibility, it can not be said that the local self-
government “enjoys” fiscal autonomy.
28
Introduction of the zoning principle: It is necessary to reconsider the possibility
that the Law on Communal Fees envisage different rates of fees, based on different
zoning. This would enable the local government to develop and manage an
appropriate local tax policy.
Modification of the origin principle for distribution of the PIT: The modification of
the applied principle of origin for the transfer of 3% of the collected PIT revenue at
national level in a way that this percentage would be shared between the
municipality in which the individual has a registered place of residence and the
municipality in which it is registered tax payer for PIT (the municipality in which
the individual works), would contribute to additional long-term positive effect
through strengthening of the link between the local public services and the level of
collection of PIT in the respective municipality.
Borrowing: As elaborated in details before, with the strictly determined conditions
for access to the capital market, the Government has established a complete
moratorium over the municipal borrowing. This is in collision with the Law on
Local Self-government, which respecting the Charter of the European Council,
allows municipalities to borrow in the market.
With an aim to allow for more significant municipal infrastructure projects to be
realized, the author suggests exploring options for relaxation of the current legal
provisions in direction of enabling municipal long-term borrowing only for
financing the construction or purchase of capital assets or investment projects.
With adoption of the proposed concept, the following additional rules should be
enforced, as to eliminate the possible risks of destabilizing municipal finance:
Municipalities may also borrow in the domestic market, solely from
domestically accredited banks, and upon approval from the Ministry of
Finance;
All municipal borrowing can be made in domestic currency, and with a fixed
interest rate over the maturity period;
If a municipality fails to serve its debt in accordance with the loan agreement,
it cannot obtain any new loans;
The municipality can only take up long-term loans with a constant or
decreasing debt-service requirement. Where the loan contract foresees an
initial release from serving the debt (“grace period”), this period should not
exceed one year from the date of the loan agreement enters into effect.
In addition, the local authorities have to focus on building administrative potential
for defining sound projects, both at the technical level and at the level of economic
feasibility, which capacity is week or non-existent at present.
The central government is urged to provide a master plan for developing local
infrastructure at a national level and technical support to municipalities for
realization of the plan.
Equalization scheme: The main aim of introducing an equalization scheme is to
enable the municipalities to finance a reasonable level of public services. The
LLSGUF envisages that 3% of the national VAT is allocated to the local sector as
29
a whole in the form of general financing non-earmarked grant. Having in mind that
the distribution of these funds to municipalities is not based on a transparent
formula and objective criteria, it is questionable whether it is a grant for inter-
municipal equalization or additional revenue for the operation of the local
administration. Equalization per se and in the theory and practice of
intergovernmental fiscal relations is a broad and troublesome issue, which we
could conclude that would be resolved in future in the Republic of Macedonia.
Taking into consideration the fact that, from a statistical point of view, neither the
central nor the local government have at their disposal appropriate data on
municipal own revenues per municipality to serve as a basis for calculation of the
equalization needs at the level of each municipality, the author suggest that the
initial period of fiscal decentralization be used for evaluation of the municipal
fiscal capacities and be then followed by an effort to adequately resolve the
equalization issue. Measuring of the fiscal capacities and real fiscal needs should
determine the criteria of fiscal disproportion estimated by specified formulations,
based on transparency, stability, fairness and objectivity, which will be the basis
for the decision of the best model for allocation of state transfers for municipalities
that cannot provide the minimum public services for its citizens.
Recommendations for improvements in the implementation
Updating the tax payers’ register: The right to set and collect the property tax is
enough incentive for the local tax administration to update the current tax payers’
register as soon as possible and thus to lay the foundation for adequate
identification of the property tax potential. One of the possibilities is to apply mass
evaluation of property based on zoning (for example, residential areas with low,
average, high and luxury quality; commercial or industrial areas; rural area). The
evaluation in this case would be based on the average value of characteristic
property in the respective zone. The registration of the tax payers when calculating
the property sales tax could also be used as information for updating the tax
payers’ register for the property tax, since it is a powerful instrument for
establishing the property market values.
Tax administration capacity building: Significant investments in building the
municipal capacities for property evaluation based on market values in accordance
with the new Methodology for Evaluation of the Immovable Property Market
Value are necessary. The introduction of local evaluation commissions is of crucial
importance since they have an interest to use the data for strengthening the
property tax base. In addition, over time they should be more familiar and more
knowledgeable than the central tax administration with the specifics of the local
property market. But this will not happen without soon and efficient building of
their capacities. It is necessary to urgently develop an effective and efficient local
tax administration for determination and collection of the taxes and communal
fees. In accordance with the LLSGUF, the employees of the regional units of the
Public Revenue Office should be transferred to the local administration35.
35
For the purposes of illustration, in accordance with a Government decision, only 11 officials from
the regional unit of the Public Revenue Office were transferred to the tax administration of the City of
Skopje. It is perceived that these 11 officials work on the tax assessment, collection and administration
of the taxes of the City of Skopje and its 10 municipalities (as a consolidated tax administration).
30
Nevertheless, this concerns only a limited number of tax administrators who do not
possess any previous experience in enforced tax collection.
Establishment of a system for determination and collection of communal fees: The
local authorities should as soon as possible invest resources in establishment of
registers of communal fees payers and adequately develop and establish a system
for their timely assessment and collection.
Strengthening of financial and fiscal capacities: The author points to the urgent
need of investing in strengthening of the minimum required capacities for financial
management, budget planning and execution, financial reporting, and
determination and collection of the genuine revenues, valid for all the
municipalities in the Republic of Macedonia. Due to the fact that the adopted legal
arrangements for sequencing of decentralisation did not perceive the so called
“zero” phase, the municipalities were not able to consolidate and restructure, to
strengthen the motivation for collection of municipal revenues, to increase their
revenue potential and build the capacities for collection of the municipal revenues
prior to the start of the fiscal decentralisation. This led to serious shortage of
trained personnel and technical resources for management of local governments’
public expenditures.
Revision of earmarked grants for the decentralised competencies: Considering the
fact that the amount of the earmarked grants for the transfer of the new
competencies was not established following a thorough evaluation of all costs for
these programs, and the horizontal redistribution was carried out without
cooperation with the local authorities and without objective criteria related to each
of the decentralised competencies, there is evident need to urgently revise the
established level of earmarked grants. The author suggests that this be carried out
by an inter-sector team of experts who would assess the level of the real costs for
each of the decentralised competencies in a transparent and appropriate way. This
would be very significant in order to resolve the already created conflict related to
this issue between the two tiers of government and to provide for quality and
efficient delivery of the services by the decentralised institutions in the period to
come.
Consolidated settlement of the local government debt arrears: Majority of the
municipalities had accumulated significant arrears in amounts significantly higher
than their current annual budgets before the start of the fiscal decentralisation. The
overall amount of such debt arrears of the City of Skopje at June 30 2005, for
example, was around Denars 600 million (almost 50% of the current budget of the
City). Despite the obligation to prepare and implement a plan for servicing of these
debts before the start of the fiscal decentralisation in accordance with the
LLSGUF, it appears that the municipalities, with a few exceptions, did not
undertake appropriate steps and did not achieve satisfactory results regarding this
issue. As a consequence, a large number of the municipalities (at least 20,
according to the information from the National Bank of the Republic of
Macedonia) entered the first phase with blocked accounts. As a result of this
failure to implement a specific plan for debt servicing by the municipalities based
on their own revenues, and regarding the fact that the debt arrears situation
actually represents breach of the provisions of the LLSGUF, the author suggests
31
coordination of the debt arrears servicing activities at national level. There are
several models which could be considered for this purpose, some of them being
already discussed between the Ministry of Finance and the international financial
institutions before the start of the fiscal decentralisation.
Timely provision of data for the planned transfers: The efficient and competent
management of public revenues at local level requires timely and accurate
information on the amount and frequency of grant transfers earmarked by the
central government for financing of the decentralised competencies according to
law. In future, the Ministry of Finance should pay more attention to implementing
an efficient mechanism of redistribution of transfers to municipalities, that is, to
announce the amount of the planned annual redistribution of transfers to
municipalities in a timely fashion, as well as the criteria used for the redistribution.
32
APPENDIX 1:
COMPETENCIES OF MUNICIPALITIES
ACCORDING TO THE NEW
LAW ON LOCAL SELF-GOVERNMENT
Article 22
(List of Competencies)
(1) Municipalities shall be competent for the performance of the following activities:
1. Urban and rural planning - urban planning and issuing of technical
documentation for construction and issuing of construction permits; regulation
and maintenance of construction land;
2. Protection of the environment and nature - measures for protection and
prevention of water, air and land pollution, protection of nature, protection
against noise and ionizing radiation;
3. Local economic development – local economic development planning;
determining of development and structural priorities; running of local
economic policy; support of the development of small and medium size
enterprises and entrepreneurship at local level and in that context, participation
in the establishment and development of local network of institutions and
agencies; promotion of partnership;
4. Communal activities - potable water supply; technological water supply;
drainage and treatment of waste waters; public illumination; drainage and
treatment of precipitation; maintenance of public hygiene; collection, transport
and treatment of communal solid and technological waste; regulation and
organization of public local transportation of passengers; supply with natural
gas and heating energy; maintenance of graves, cemeteries, crematoria and
provision of burial services; construction, maintenance, reconstruction and
protection of local roads, streets and other infrastructure facilities; regulation of
traffic regime; construction and maintenance of street traffic signalization;
construction and maintenance of public parking spaces; removal of improperly
parked vehicles; removal of damaged vehicles from public spaces; chimney
sweeping; construction and maintenance of markets; maintenance and use of
parks, green spaces, park-forests and recreational spaces; regulation,
maintenance and use of river beds in urbanized parts, determining of names of
streets, squares, bridges and other infrastructure facilities, etc.;
5. Culture – institutional and financial support to cultural institutions and
projects; preservation of the folklore; customs; traditional handicrafts and
33
similar cultural heritage; organization of cultural events; encouraging of
various specific forms of artistic work;
6. Sport and recreation - development of general sport and recreational activities
of the citizens; organization of sport events; maintenance and construction of
sport facilities of public interest for the municipality, support to sport
associations;
7. Social welfare and child protection – kindergartens and homes for the elderly
(ownership, financing, investments and maintenance); exercising of social care
for disabled persons, children without parents and parental care, children with
educational and social problems, children with special needs, children from
single-parent families, deserted children, persons exposed to social risk,
persons with drug and alcohol addiction problems; raising of citizens’
awareness, housing of persons put to social risk, sheltering and education of
pre-school children;. Performance of these competencies shall be in accordance
with the National Program for Development of Social Care;
8. Education – establishing, and financing, and administering of primary and
secondary schools, in cooperation with the central government, in accordance
with law; organizing of transportation of students and food and their
accommodation in dormitories;
9. Healthcare – governance of the network of public health organizations and
primary care buildings to include representation of local government in all the
boards of all publicly owned healthcare organizations; health education; health
improvement; preventive activities; protection of health of workers and
protection at work; health oversight over the environment; oversight over the
contagious diseases; assistance to patients with special needs (mental health,
child abuse, etc.); and other areas that will be determined by law;
10. Execution of preparations and undertaking of activities for protection and
rescuing of citizens and goods against war destructions, natural and other
disasters as well as against the consequences caused by them;
11. Firefighting activities performed by the territorial firefighting brigades;
12. Supervision over the performance of activities under municipal competency;
13. Other activities determined by law.
(2) Competencies referred to in paragraph 1 of this Article shall be performed in
accordance with the standards and procedures determined by law.
(3) It shall be determined by law which of the activities of the municipality are
mandatory.
34
APPENDIX 2:
COMPETENCIES OF THE CITY OF SKOPJE
AND MUNICIPALITIES IN SKOPJE
ACCORDING TO THE NEW
LAW ON THE CITY OF SKOPJE
III COMPETENCIES OF THE CITY OF SKOPJE AND THE MUNICIPALITIES
IN THE CITY OF SKOPJE
a) Competencies of the City of Skopje
Article 10
Competencies, that is, matters of public interest and local significance for the
City of Skopje are:
1. Planning and Spatial Organization
- adopting a spatial plan of the City of Skopje;
- adopting a master urban plan for the City of Skopje;
- giving opinions of the draft detailed urban plans, urban project designs and urban
plans for the populated places adopted by the municipalities in the City of Skopje;
- arranging construction land;
- determining standards and giving agreement to placement of temporary facilities,
furniture and urban equipment on the territory of the City of Skopje.
2. Protection of the Environment and Nature
- protection, undertaking measures and prevention from pollution of water, air, land,
protection of nature, protection from noise and un-ionizing emitting on the
territory of the City of Skopje.
3. Local Economic Development
- planning of the local economic development of the City of Skopje;
- determining development and structural priorities at the level of the City of
Skopje;
- adopting local economic policy at the level of the City of Skopje;
- determining strategies and supporting the development of the small and medium
enterprises and entrepreneurship;
- development and encouragement of the alternative and cultural tourism;
35
- improvement of the conditions for stay of tourists in the City of Skopje and tourist
propaganda informing.
4. Communal Activities
- construction, usage, protection and maintenance of the arterial and collective
streets and other infrastructural facilities;
- categorization and naming of city neighborhoods, streets, squares, bridges and
other infrastructural facilities;
- supplying the drinking water from the unique water supply system of the City of
Skopje;
- channeling and treatment of waste waters;
- channeling and discharge of atmospheric waters;
- treatment and delivery of technological water;
- construction and maintenance of the public lighting at the arterial and collective
streets on the territory of the City of Skopje;
- collecting and transporting of the communal and other types of non-hazardous
waste;
- maintaining the dump sites for communal and other types of non-hazardous waste;
- regulating and organizing the public city and suburban transportation of
passengers;
- maintaining the public hygiene of the public traffic areas;
- maintaining and using of the city parks, forest-parks on the territory of the City of
Skopje, water and sports and recreational zones, determined by the master urban
plan and other protected areas in accordance to law;
- maintaining the greenery at the arterial and collective streets;
- construction, maintaining and using the public parking lots significant for the City
of Skopje, determined by the urban plan;
- placement, protection, removal and maintenance of the traffic signs and protection
equipment at the local streets and roads;
- determining conditions and regime of the traffic on the territory of the City of
Skopje;
- maintaining the graves, cemeteries, cremation facilities and providing burial
services at the city cemetery, determined by the urban plan;
- supply of natural gas and heating;
- building, organizing, maintaining and using the only geographic information
system of the City of Skopje;
- regulation, maintenance and using the river beds in the urban parts;
- desinsection on the territory of the City of Skopje;
- building, using and maintaining wholesale markets and markets for sale of motor
vehicles on the territory of the City of Skopje;
- eradication of the stray animals;
- determining spots for burial of dead animals and their maintenance;
- decoration of the City of Skopje.
5. Culture
- institutional and financial support to the cultural institutions and projects of
importance for the City of Skopje;
- cherishing the folklore, customs, old crafts and similar cultural values;
- organizing cultural events; encouraging various specific forms of creation;
- celebrating events and persons of importance for the City of Skopje.
6. Education
36
- establishing, financing and participation with its representatives at the bodies for
management of the public high schools on the territory of the City of Skopje, in
accordance with the law;
- appointing principals of the public high schools and the student dormitories, in
accordance with the law;
- organizing transportation, food and accommodation for the students in the student
dormitories, in accordance with the law.
7. Sport
- providing conditions for development of quality sport in the City of Skopje;
- organizing, encouragement and assistance to sport events of importance for the
City of Skopje;
- construction and maintenance of sport facilities of importance for the City of
Skopje.
8. Social and Child Care
- providing social care for people with disabilities, children without parents and
parental care, children with educational and social problems, children with special
needs, children with a single parent, homeless children, persons at social risk,
persons endangered by abuse of drugs and alcohol, raising the awareness of the
population, housing for people with social risk;
- property, management, founding, financing and maintenance of public institutions
– homes for the elderly in accordance with the law;
- property, management, founding, financing and maintenance of public institutions
– children resorts, in accordance with the law;
- participation of its representatives in the bodies for management of the public
institutions for children – kindergartens, on the territory of the City of Skopje, in
accordance with the law.
9. Healthcare
- participation in the management of the network of public health institutions and
primary healthcare facilities of importance for the City of Skopje;
- undertaking measures for protection of the health of workers and protection at
work;
- health education;
- health promotion;
- preventive activities;
- health supervision over the living environment and the contagious diseases;
- help to patients with special needs.
10.Protection and Rescue
- coordination of the activities for protection and rescue of citizens and material
goods against war destruction, natural disasters and other disasters and the
consequences caused by them.
11. Firefighting
- firefighting on the territory of the City of Skopje.
12. Supervision
- supervision over the works within the competence of the City of Skopje.
The opinion of paragraph 1, item 1, line 3 of this Article is given by the City of
Skopje no later than within 30 days of the day the draft plan has been submitted, and if
it is not provided within this deadline, it will be considered that the opinion is positive.
37
The competence of paragraph 1, item 4, line 15 of this Article is performed in
accordance with the administrative body that is in charge of the traffic issues.
The bodies of the City of Skopje can also perform other tasks as determined by
law.
b) Competencies of the Municipalities in the City of Skopje
Article 15
The competencies, that is, works of public interest of local significance for the
municipalities in the City of Skopje are:
1. Planning and Spatial Organizing:
- starting initiatives for adoption, changes and amendments to the spatial plan of the
City of Skopje and the master urban plan of the City of Skopje;
- giving opinion on the draft spatial plan of the City of Skopje and the master urban
plan of the City of Skopje;
- adoption of detailed urban plans, urban designs and urban plans for the populated
places in the municipality;
- implementation of the urban plans and projects and issuing documentation for
construction of facilities of local significance (conditions for construction, urban
agreement, construction permits);
- issuing approvals for placement of temporary facilities, furniture and urban
equipment;
- arranging the construction land in the part of equipping the construction land with
facilities and installations of the secondary infrastructure.
2. Protection of the Environment and Nature
- starting initiatives and undertaking measures for protection and prevention of
pollution of water, air, land, protection of nature, protection of noise and non-
ionizing emitting.
3. Local Economic Development
- planning of the local economic development of the municipality;
- determining development and structural priorities of the municipality;
- support to the development of small and medium enterprises and entrepreneurship
in the municipality.
4. Communal Activities
- construction, maintenance, reconstruction and protection of service and residential
streets and other infrastructural facilities;
- maintenance of the public hygiene of the service and residential streets;
- organizing, removal and transport of communal and other types of non-hazardous
waste;
- construction and maintenance of public lighting of residential and service streets
on the territory of the municipality;
38
- maintaining the graves and cemeteries and providing burial services at eth
municipal cemetery determined by the urban plan;
- construction, maintenance and using the public parking lots of importance for the
municipality as determined by the urban plan;
- maintenance and using the greenery at the service and residential streets;
- removal of the unregistered motor and other vehicles from the public areas;
- maintenance and usage of public markets;
- disinfection and deratisation;
- construction and maintenance of public sanitary networks.
5. Culture
- institutional and financial support to the cultural institutions and projects of
importance for the municipality;
- cherishing the folklore, customs, old crafts and similar cultural values;
- organizing cultural events, encouraging various specific forms of creation;
- celebrating events and personalities of importance for the municipality.
6. Education
- establishing, financing and participation in the management of the primary schools
on its territory in accordance with the law;
- appointing principals of the primary schools, in accordance with the law;
- transportation and food for the students in the schools of its competence, in
accordance with the law.
7. Social and Child Care
- ownership, management, founding, financing and maintenance of the public
institutions for children – kindergartens, in accordance with the law;
- undertaking measures in the area of social care in accordance with the law.
8. Healthcare
- undertaking measures for protection of the health of the workers and protection at
work;
- health education;
- health promotion;
- preventive activities;
- health supervision over the living environment and contagious diseases;
- assistance to patients with special needs.
9. Protection and Rescue
- protection and rescue of citizens and material goods against war destruction,
natural disasters and other disasters and the consequences caused by them.
10. Supervision
- supervision over the works within the competence of the municipality.
The plans and designs of paragraph 1, item 1, line 3 of this Article are adopted
by the municipality following a previous positive opinion of the City of Skopje and
agreement of the state administrative body in charge of the issues of spatial
organisation.
The works of paragraph 1, item 1, line 5 of this Article are done in accordance
with determined standards, after a previous agreement of the City of Skopje.
The works of paragraph 1, item 4, line 3 of this Article are done in agreement
with the City of Skopje.
39
The works of paragraph 1, item 9 of this Article are done in cooperation with
the City of Skopje.
APPENDIX 3:
REVENUES OF THE CITY OF SKOPJE
Table 1: Total Revenues of the City of Skopje, year 200436
Revenues In mil. Denars Share (%)
1. Genuine revenues 154.9 9.7
2. Non-tax revenues 1,174.5 73.8
3. Capital revenues 87,8 5.52
4. Transfers 125,3 7.88
5. Foreign donations (grants) 4,3 0.27
6. Borrowing 44,0 2.76
Total 1.590,8 100.0
36
Source: Annual balance sheet of the Budget of the City of Skopje for the year 2004
40
Table 2: Structure of City’s of Skopje genuine revenues in 2004
(in %) 2004
Taxes 66.23
Communal Fees 33.77
Total 100
Source: Secretariat for Finance - City of Skopje
Table 3: The main tax revenues of City of Skopje in percentage from total tax revenues
Tax revenues (in %) 2003 2004
Property tax 14.40 6.21
Inheritance and gift tax 2.19 3.02
Property transaction tax 83.18 90.55
Interest for late payments 0.23 0.21
Total: 100,0 100,0
Source: Secretariat for Finance - City of Skopje
Table 4: Communal fees structure in the City of Skopje, year 2004
No. Type of communal fee Structure (in %)
1. Communal fee for temporary stay 7.55
2. Communal fee for a sign or a designation of premises 27.41
3. Communal fee for the use of roads to drive passenger cars, freight
vehicles, highway vehicles, motor and sidecars
11.64
4. Fee on city light 53.40
5. Other communal fees 0.00
Total 100.0
Source: Secretariat for Finance – City of Skopje
41
APPENDIX 4:
RIGHTS, OBJECTS AND SERVICES OF PUBLIC
CHARACTER SUBJECT TO COMMUNAL FEES
ACCORDING TO THE LAW ON UTILITY FEES (Article 3)
1. For a sign or a designation of company
2. For the use of camp areas to pitch tents and for similar temporary uses
3. For utilising pavements in front of the premises for carrying out business
activities
4. For displaying announcements, messages, and advertisements in public places
5. For music in public places
6. For the display of entertainment objects in public spaces
7. For the possession of showcases for displaying goods outside premises
8. For the use of parking lots
9. For the use of squares and other urban spaces in towns, municipalities and
settlements to display objects, organize exhibits, entertaining shows, etc
10. For the use of roads to drive passenger cars, freight vehicles, highway vehicles,
motor and sidecars
11. For the use and maintenance of public electricity
42
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