Fiscal decentralisation and effective budgeting for sub-national administrations (SNAs) is central to the next phase of decentralisation reform in Cambodia.

According to the National Program on Democratic Development (NP-SNDD) Phase 2 – 2021-2030 (NP2), “SNAs need more budget resources to contribute to local service delivery and development.”

Currently, SNA revenues (sourced both from own source revenue and national transfers) are insufficient to cover the cost of fully implementing their mandated functions. This issue is particularly acute at the district, municipality, and khan (DMK) level where new functions, structures, and systems have been transferred and established but remain to be sufficiently
financed.

The current budget allocations do not reflect fully the mandates of the different levels of SNAs and, as part of the reform the new accountabilities that are being placed on to the SNAs as a result of legislative and functional upgrades.

The current system of allocations that have not considered the policy impacts of the decentralisation process that includes legislative driven responsibilities coupled with extended mandates created through functional transfers has created persistent imbalance both vertically and horizontally.

The share of own-source revenue with the SNA budgets has been very minimal, especially for the DMK level. This can be attributed to the DMK having been given limited authority to collect only a small amount of non-tax revenue (NTR).

In addition, it is noted that in the last three years, as more NTR items have been transferred to the SNAs, it has been the CP, not the DMK nor the Commune/ Sangkat (CS) level, that was given more
attention.

This rationale being that within the SNA architecture only the CP levels have appropriate personnel, the requisite finance and the effective and efficient operational management capacity further exacerbating the already significant vertical imbalances.

However, at the CP levels there as been an increase of the administrations reliance on their own source revenue to cover their operation and development activities.

The RGC Medium Revenue Mobilisation Strategy (RMS) 2019-2023, placed greater attention on improving national tax revenues. In recent years, more emphasis has been placed on the development of the NTR systems especially after the adoption of
the Law on NTR in 2022.

Unlike the tax policy and administration, the emerging reform agenda on NTR, has explicitly
recognised the roles of SNA, and thus more consistent and complementary to
the NP2 reform agenda.). To support the broader decentralisation reform, the NP2 envisions and plans for the development of Strategic Framework for SNA NTR.

Please consult this study for more information.