Chapter – XVII) Local Government Finance

LOCAL GOVERNMENT FINANCE AND PROPERTIES

Chapter – XVII) Local Government Finance #

72.       Funds of a local government.– #

(1) A local government shall establish a Local Fund, and all the revenues received by the local government from the following sources shall be credited to the Fund:

(a)        the proceeds of taxes, tolls, fees, rates or charges levied by the local government;

(b)       grants made to or monies received by the local government from the Government or other sources;

(c)        rents and profits payable or accruing to the local government from immovable property owned or otherwise vested in or controlled or managed by it;

(d)       proceeds or any other profits from any investment;

(e)        gifts, grants or contributions to the local government by individual or institutions;

(f)        income accruing from markets or fairs regulated by the local government;

(g)       fines and penalties imposed under this Act;

(h)       proceeds from other sources of income which are placed at the disposal of the local government under directions of the Government;

(i)        all monies transferred to the local government by the Government; and

(j)        monies transferred by another local government under this Act.

(2)        The Government shall transfer the grants of a local government in the shape of share of the local government in the Punjab Finance Commission Award and share in the proceeds of taxes, tolls, fees, rates or charges levied by the local government collected by the Government to the Local Fund of the local government on monthly basis.

(3)        Every local government shall maintain a Public Account to place all revenues received by the local government from the following sources:

(a)        receipts accruing from trusts administered or managed by the local government;

(b)        refundable deposits received by the local government; and

(c)        deferred liabilities.

(4)       A local government may establish and maintain a separate account for any special purpose to which one or more sources of revenue mentioned in subsection (1) or any part of these sources or any specified portion of the Local Fund may be assigned.

(5)       The separate account under subsection (1) shall be maintained, administered and regulated as a Local Fund.

NOTES:
PARI MATERIA PROVISIONS
PLGA 2013	PLGA 2019	PLGO 2021	PLGA 2022 (Act No. XIII of 2022)	PLGA 2022 (Act No. XXXIII of 2022)
s.	s.	s.	s.	s.
100	122	72	81	72

73.       Custody of Local Fund and Public Account.– #

The monies credited to the Local Fund or the Public Account of a local government shall be kept and operated in separate accounts of a local government in such manner as may be prescribed.

NOTES:
PARI MATERIA PROVISIONS
PLGA 2013	PLGA 2019	PLGO 2021	PLGA 2022 (Act No. XIII of 2022)	PLGA 2022 (Act No. XXXIII of 2022)
s.	s.	s.	s.	s.
101	127	73	82	73

74.       Charged expenditure.– #

(1) The following expenditure shall be charged upon the Local Fund:

(a)        the money required for repayment of loans;

(b)       the money required to satisfy any judgment, decree or award against the local government;

(c)        the money required by the Government to contribute for deferred liabilities of the local government; and

(d)       such other expenditure of local government as may be directed by the Secretary, in case of calamity or urgency.

(2)       If any expenditure is a charge upon the Local Fund and is not paid, the Secretary may, by order, direct the person having the custody of the respective Local Fund to pay such amount from the Local Fund.

NOTES:
PARI MATERIA PROVISIONS
PLGA 2013	PLGA 2019	PLGO 2021	PLGA 2022 (Act No. XIII of 2022)	PLGA 2022 (Act No. XXXIII of 2022)
s.	s.	s.	s.	s.
102	–	74	83	74

75.       Application of Local Fund.– #

(1) The monies credited to a Fund shall be expended by a local government in accordance with the annual budget and supplementary budget approved by its Council.

(2)        A local government may transfer approved budgeted amounts to any local government or Community Council or Panchayat or Community Based Organization, within its local area, for expenditure for the purpose of carrying out a project service or activity transferred to, or managed by, the recipient local government, Community Council, Panchayat or Community Based Organization, in the prescribed manner.

(3)       The application of Local Fund shall be subject to the budgetary constraints and according to the minimum prescribed ratio of development and non-development expenditures.

(4)        The development budget shall be prioritized in accordance with the bottom up planning system as laid down in section 78:

                        provided that:

(a) not more than twenty percent of the development budget shall be set apart for utilization in accordance with the provisions of section 78; and

(b) the amount referred to in clause (a) which remains unspent shall be credited under the same Head in the following year’s budget in addition to the fresh allocation under the said clause for that year.

            (5)        Every local government shall allocate not less than twenty percent of its budget for maintenance and repair of existing infrastructure and provision of earlier initiated services.

            (6)        Every local government shall allocate two percent of its budget for sports and cultural activities.

(7)       Where a new local government is to take over during a financial year as a result of fresh elections, the outgoing local government shall not spend funds or make commitments for any expenditure under any Demand for Grant or Appropriation in excess of eight percent per month of the budgeted funds for the remainder of its term in office in that financial year .

(8)        In every budget, a provision may be made for payment of such performance incentive bonuses as may be prescribed.

(9)        Expenditure from the Fund of a local government on total establishment expenditures in a financial year shall not increase more than ten percent in total from the establishment expenditures of the previous year:

            provided that this subsection shall not apply to a general salary increase of existing schedule of establishment prescribed by the Government.

NOTES:
PARI MATERIA PROVISIONS
PLGA 2013	PLGA 2019	PLGO 2021	PLGA 2022 (Act No. XIII of 2022)	PLGA 2022 (Act No. XXXIII of 2022)
s.	s.	s.	s.	s.
103	124,126	75	84	75

Comments

This section enables a local government to transfer budgeted amounts to any other local government or Community Council or Panchayat or Community Based Organization for expenditure to carry out any project service or activity transferred to or managed by such receipt local government, etc. It is important to note that a local government can transfer amounts only to such local government, etc. falling in its local area. Main purpose of this section is to ensure that only the residents of the transferor local government shall benefit from the said project service or activity which is undertaken by the transferred local government, etc. This section also delegated power to the Provincial Cabinet to make rules to regulate transfer of such budgeted amount.

The Hon’ble High Court in the judgment reported as 2010 YLR 1271 Lahore in the case titled “Waris Ali v. Secretary Local Government and Community Development Department” distinguished the new development projects and on-going development projects in the following terms”

From a bare reading of rule 40(2) of the Punjab Union Administration (Budget), Rules 2003 and section 109(6) of the Punjab Local Government Ordinance, 2001, it appears that development projects on which no expenditure has been incurred previously shall be termed as “New’ development projects and development projects on which expenditure has been incurred in previous years shall be ongoing. In this case, the annual development projects, which have been approved, and the work orders which have been issued, pertain to the fresh annual development program and the same will be undertaken in the year 2009-2010, as such, the same also cannot be considered to be ongoing projects of the year 2008-2009 as no expenditure has been incurred on these projects.

76.       Budget preparation.– #

(1) The annual budget for a local government shall contain estimates of:

(a)        grants from the Government;

(b)       amounts available in the Local Fund;

(c)        receipts for the next year; and

(d)       expenditure to be incurred for the next year.

(2)       The Government shall, sufficiently before the beginning of each financial year, notify the provisional share which may be credited to the Local Fund of a local government from the Provincial Allocable Amount.

(3)       The functionaries of a local government may re-appropriate budget in accordance with the powers of re-appropriation delegated to them by the local government, and at the end of the financial year, a revised budget shall be submitted to the local government for approval.

(4)       A demand for a grant shall not be made except on the recommendation of the Head of local government.

(5)       Conditional grants from the Government or other local government shall be shown separately in the budget and shall be governed by the conditions on which such grants were made.

(6)        Before the commencement of a financial year each local government shall, for its Fund, prepare in the prescribed manner, a budget for that year in conformity with the provisions of section 78.

(7)       A local government shall prepare the budget in the prescribed manner and in accordance with the chart of accounts notified by the Auditor-General of Pakistan.

NOTES:
PARI MATERIA PROVISIONS
PLGA 2013	PLGA 2019	PLGO 2021	PLGA 2022 (Act No. XIII of 2022)	PLGA 2022 (Act No. XXXIII of 2022)
s.	s.	s.	s.	s.
104	–	76	85	76

RELEVANT RULES
1.	Punjab Local Governments (Budget) Rules, 2017
2.	Punjab Union Council (Budget) Rules, 2017

77.       Approval of budget.– #

(1) Before the commencement of the next financial year, the Head of local government shall present the budget for consideration and approval of the local government.

(2)       The local government may discuss the charged expenditure but shall not vote on such expenditure.

(3)       The budget of a local government shall, subject to quorum, be approved by simple majority and the local government shall not take up any other business during the budget session.

(4)       Secretary may review approved budget of a local government, and if found contrary to the budget rules, may require the local government to rectify it.

(5)       A budget shall not be approved if the sums required to meet estimated expenditure including previous liabilities and commitments exceed the estimated receipts.

(6)       In case a budget is not approved by a local government before the commencement of the financial year to which it relates, the local government shall spend money under various objects, on pro-rata basis in accordance with the budgetary provisions of the preceding financial year for a period not exceeding thirty days.

(7)       A local government shall not spend funds or make commitments for any expenditure under any demand for grant or appropriation in excess of eight percent of the amount budgeted in the preceding year within the period of thirty days mentioned in subsection (6).

(8)       In case, a local government fails to pass the budget within the extended period as specified in subsection (6), the Secretary shall prepare, approve and authenticate the budget of the local government for full year.

(9)       After approval of the budget by a local government, the Head of local government shall authenticate under his signature a schedule specifying:

(a)        grants made or deemed to have been made by the local government; and

(b)       sums required to meet the expenditure charged upon the Local Fund.

(10)     The budget authenticated under subsection (8) shall be laid before the local government but shall not be open to discussion or vote.

(11)     The authenticated budget shall be communicated to the local government functionaries, accounts officials, the Secretary and posted on the official website or a portal designated by the Department for this purpose.  

(12)     At any time before the expiry of the financial year to which the budget relates, a revised budget for the year may, if necessary, be prepared and such revised budget shall be approved in the manner as that of annual budget.

NOTES:
PARI MATERIA PROVISIONS
PLGA 2013	PLGA 2019	PLGO 2021	PLGA 2022 (Act No. XIII of 2022)	PLGA 2022 (Act No. XXXIII of 2022)
s.	s.	s.	s.	s.
105	–	77	86	77

Comments

In the judgment reported as PLD 2009 Lahore 104 in a case titled “Ch. Tariq Bashir Cheema v. Government of Punjab through Secretary LG&CD Department and 3 others”, the Hon’ble Lahore High Court discussed the power to review of approved budget of a local government by the Government under sub-section (7) of section 112 of the Punjab Local Government Act, 2013 corresponding to sub-section 4 of this section and observed that:

“In other words section 112 contemplates three situations; firstly approval of the budget by a Local Council before commencement of next financial year i.e. before 1st July of every year; secondly, approval of budget by a Local Council within extended period; thirdly, approval and authentication of budget by the Provincial Government in case of failure of a Local Council to approve the budget within extended period of 30 days. It also means that this power is not available to the Provincial Government in case a Local Council approves a budget disregarding rules of 2003 or provisions of subsection (4) of section 112. In the latter case, the Provincial Government can review the budget and also can require a Local Council to rectify the budget accordingly.”

The Hon’ble Court in the judgment reported as PLD 2009 Lahore 124 in the case titled “Shaukat Ali Vs. Government of the Punjab through Secretary Local Government”, while discussing the legal obligation of the Counsel to prepare and approve budget in accordance with the prescribed procedure observed that in case of failure of the Counsel to approve the budget within the prescribed period, the Government is empowered to prepare and approve budget for which observance of the prescribed procedure is not required. Relevant paragraph of the judgment is reproduced below:

5. Taking up first two questions together, it may be stated that section 111 in general enunciates the principles to be followed while preparing the budget of the LG, whereas subsection (6) thereof specifies that before the commencement of a financial year each Local Government shall, from its funds, prepare in the “prescribed manner” a budget in conformity with the provisions of section 119, obviously meaning thereby that by strictly adhering to the Ordinance and the Rules. The mechanism of the presentation of the budget and its approval or otherwise by the Council (except subsection (7)) and its authentication by the Nazim is given in sections 111 and 112. From the object and the spirit of the constitutional provisions and the Ordinance mentioned above, a considerable autonomy and authority should be construed to have been conferred upon the LG and the Council in preparing and approving the annual budget, and this in my view is the “ordinary course” for the budget. However, section 112(7) is an exception to this “ordinary course” and shall automatically come into play, when for whatever reasons the Council fails to approve its budget within the prescribed time. The Government under this authority, which can be termed analogous to its statutory duty, with a view to meet an emergency situation caused and created due to the default of the Council itself in approving the budget, comes into motion, and under the command of the law’ steps in to prevent the catastrophe, financial impasse and the standstill of the Council; this undoubtedly is a rescuing measure, which the government imperatively is required to take in order to bailout the Council for a chaos. When the government undertakes the responsibility of enforcing the budget under the provision ibid, it is an “extraordinary course” envisaged by law and thus it is omnipotent to “prepare”, “approve” and “authenticate” the budget. And while doing so, is not bound to follow the “prescribed procedure”, as required to be adhered to by the LG in terms of subsection (6) of section 111, which reads “before the commencement of a financial year each local council shall, from its funds, prepare in the prescribed manner a budget for that year in conformity with the provisions of section 119”. The condition of the “prescribed manner” is conspicuously missing in the subsection (7) ibid, which clearly depicts the intention of the legislature that the government has been absolved of all the restrictions/requirements, which are essential for the making of the budget in “ordinary course”. Therefore, it is a clear case where due to the failure of the Council to pass the budget within the time provided by law, the situation warranted the exercise of authority by the government in terms of section 112(7) and while adopting the extraordinary course, it was not required to follow the prescribed procedure.

In another judgment reported as 2008 CLC 81 in the case titled “Zila Nazim Kasur v. Government of the Punjab through Secretary Local Government & Community Development Department and 3 others”, the Hon’ble High Court vide discussing the powers of Head of the local government to present the budget to the Counsel for approval and afterwards incorporation of amendment in the development budget book and its authentication by the Head, observed that no institution of Local Government or Federal/Provincial Government can function unless it has financial independence and sovereignty. The Local Government Ordinance, 2001 is unequivocal in its language as far as these powers of the Local Government Institution are concerned (Paragraph 5) and The whole scheme of the Punjab Local Government Ordinance, 2001 is based on devolution powers which include’ financial powers, from the Provincial Government to the District Government (Paragraph 7).

78.       Bottom up planning and the community ownership incentive system.– #

(1) Before the beginning of the financial year the respective local government shall lay down and announce the classification of development schemes to be undertaken exclusively under the provisions of this section.

 (2)        A local government may grant to the Community Based Organization within its local areas, up to eighty percent of the budgeted amount of an approved development scheme in the manner prescribed:

            provided that a scheme shall be deemed to be an approved scheme if:

(a)        the prescribed departmental procedure for estimating the cost of the scheme has been followed;

(b)      the estimating officer certifies that the scheme meets the requirements laid down by law;

(c)       the Community Based Organization has deposited its share of the cost of the development scheme with the concerned local government; and

(d)      the complete departmental estimates and the proof of deposit of the contribution of Community Based Organization are attached.

(3)        The grant referred to in subsection (2) shall be spent from the reserved amount of the annual development budget as provided in section 75.

(4)        A cut-off date for submission of all schemes proposed by the Community Based Organization shall be announced by the local government concerned before the presentation of its budget.

(5)        The respective local government shall authorize an official to draw up a statement specifying the schemes submitted by the cut-off date specified in subsection (4) by classification including the total amount of contributions for a particular classification of schemes.

(6)        A second statement shall determine contributions for a particular classification of schemes as a ratio of the total contributions for all schemes submitted with a particular local government for that year, and the statement shall be used to determine amounts of allocations for a classification of schemes from the budget reserved for the purpose.

(7)        A third statement shall be drawn up which shall identify the number of schemes submitted in a particular classification, beginning with the scheme containing the highest contribution by the Community Based Organization in a classification until all the schemes in the classification are selected or the funds allocated for that particular classification in the amount determined in subsection (6) are exhausted.

 (8)        The funds for Community Based Organization under section 75 shall be communicated to the authorized officer under subsection (5).

(9)        The identified schemes shall be included in the budget before submission to the concerned Council.

(10)     The statement referred to in subsection (7) shall be approved by a simple majority of the members of the respective Council in a budget session to be held by the respective Council.

(11)      The schemes approved by the respective Councils shall be carried out as prescribed.

(12)      Subject to subsection (10), the Accounts Official of the respective local government shall release funds in the prescribed manner in accordance with the schedule of expenditure.

NOTES:
PARI MATERIA PROVISIONS
PLGA 2013	PLGA 2019	PLGO 2021	PLGA 2022 (Act No. XIII of 2022)	PLGA 2022 (Act No. XXXIII of 2022)
s.	s.	s.	s.	s.
–	–	78	87	78

79.       Honoraria and allowances.– #

A local government may, subject to the specified limitations approved by the Government, make budgetary provisions for honoraria and allowances of the Head of local government, Deputy Mayor, Vice Chairperson, Speaker, Opposition Leader or a Councillor of the local government.

            Provided that remuneration and allowances would be allowed only in one capacity.

NOTES:
PARI MATERIA PROVISIONS
PLGA 2013	PLGA 2019	PLGO 2021	PLGA 2022 (Act No. XIII of 2022)	PLGA 2022 (Act No. XXXIII of 2022)
s.	s.	s.	s.	s.
106	–	79	88	79

RELEVANT NOTIFICATION
1.	Notification No. SOR(LG)39-7/2017 dated 16.03.2017 regarding “Honorarium for Local Government Elected Heads and Members Under PLGA, 2013”.

80.       Accounts.– #

(1) The accounts of all receipts and expenditures of a local government shall be kept in such form and in accordance with such principles and methods as may be prescribed by the Auditor-General of Pakistan.

(2)       In addition to maintenance of accounts by a local government, Provincial Director, Local Fund Audit of the Government shall maintain the accounts of the local governments, other than the accounts of the Union Council, and devolved offices managed under the respective District Local Government Authority.

(3)       The Secretary of a Union Council, shall maintain the accounts of the Union Council.

(4)       Accountant General and District Accounts Officer of the District shall maintain the accounts of the devolved offices managed under the respective District Local Government Authority.

(5)       The Provincial Director, Local Fund Audit of the Government shall pre-audit all the payments from the Local Fund of a local government other than the payments from the Local Fund of the Union Council and accounts of the devolved offices managed under the respective District Local Government Authority.

(6)       The Secretary of the Union Council shall pre-audit all the payments from the Local Fund of the Union Council.

(7)       The Accountant General and the District Accounts Officer shall pre-audit all the payments from the Local Funds of the devolved offices managed under the respective District Local Government Authority.

(8)       A local government shall not withdraw or disburse money from the Local Fund unless it is pre-audited in the prescribed manner.

(9)       The Provincial Director, Local Fund Audit and the Accountant General shall, by fifteenth day of July, prepare an annual statement of receipts and expenditures of the accounts of local governments and District Local Government Authorities, for the preceding financial year, and shall transmit the statement to the Government and the concerned local government.

(10)     A copy of the annual statement of accounts shall be displayed at a conspicuous place in the office of the local government for public inspection, and all objections or suggestions concerning such accounts received from the public shall be considered by the local government and appropriate decision shall be taken.

NOTES:
PARI MATERIA PROVISIONS
PLGA 2013	PLGA 2019	PLGO 2021	PLGA 2022 (Act No. XIII of 2022)	PLGA 2022 (Act No. XXXIII of 2022)
s.	s.	s.	s.	s.
107	191	80	89	80

RELEVANT RULES
1.	The Punjab Local Governments (Accounts) Rules, 2017.
2.	The Punjab Local Government (Accounts) Rules, 2008.
3.	The Punjab Union Councils (Accounts) Rules, 2017.
4.	The Punjab Districts Authorities (Accounts) Rules, 2017.

81.       Audit.– #

(1) The Auditor-General of Pakistan shall, on the basis of such audit as he may consider appropriate or necessary, certify the accounts of a local government for each financial year.

(2)       The Auditor-General shall audit the accounts of a local government in such form and manner as may be deemed appropriate.

(3)       The audit report of the Auditor-General shall be considered by the Public Accounts Committee of the Provincial Assembly of the Punjab.

(4)       If in the opinion of the Government, it is necessary in public interest to have a special audit of a local government, it may cause it to be conducted by Auditor General of Pakistan or the Provincial Director Local Fund Audit .

(5)       After the receipt of special audit report of a local government, the Government may, after enquiry by the Punjab Local Government Commission, take appropriate action on the recommendations of the Commission.

NOTES:
PARI MATERIA PROVISIONS
PLGA 2013		PLGA 2019	PLGO 2021	PLGA 2022 (Act No. XIII of 2022)	PLGA 2022 (Act No. XXXIII of 2022)
s.		s.	s.	s.	s.
108		194	81	90	81
RELEVANT RULES
1.	The Punjab Local Government (Internal Audit) Rules, 2004.

82.       Local government debt.– #

(1) A local government shall not incur any debt without previous approval of the Government.

(2)        A local government may invest surplus funds, if any, in such securities and financial institutions, as may be approved by the Government.

NOTES:
PARI MATERIA PROVISIONS
PLGA 2013	PLGA 2019	PLGO 2021	PLGA 2022 (Act No. XIII of 2022)	PLGA 2022 (Act No. XXXIII of 2022)
s.	s.	s.	s.	s.
109	–	82	91	82