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July, 2013

This publication was prepared by the United States Agency for International Development (USAID)
Democratic and Effective Municipalities Initiative Program in Kosovo. The views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government.

Authors:
Agim Salihu, USAID DEMI - Service Delivery Unit Head
Lirim Bajraktari, USAID DEMI - Own Source Revenue Advisor
Nehat Ramadani, USAID DEMI - Service Delivery Advisor
Editing:
Flora Smith, USAID DEMI - Program Assistant

Table of Contents

Acknowledgments 6
Introduction

7

I.

General overview of OSR in Kosovo

9

A. Brief history of OSR in Kosovo

9

B. The importance of OSR

10

C. Different types of OSR

12

D. OSR collection trend in the past years

16

E. Comparison with other Balkan countries

18

II. USAID DEMI approach
A. Integrated approach involving all stakeholders

20
21

1. Consensus building workshops

23

2. Municipal Finance workshops

23

3. Planning for increased OSR collection

24

4. Public budget hearings

26

5. Inventory of municipal assets and improved asset management

26

6. Monitoring the transfer of indirect OSR

28

7.

Inspectorates’ effectiveness

28

8.

Municipal Regulation on fees, charges and fines, and recording and reporting
Administrative fees

28

9. Municipal regulations on the property tax

29

10. Property registration

30

11. Property Tax analysis and actions

33

12. Targeted campaign

34

B. Steps to stimulate the payment of property taxes from different target groups

35

III. Best practices

38

IV. Conclusions and Recommendations

42

V. ANNEXES

43

Annex 1: USAID DEMI Results in Own Source Revenue Collection

43

Annex 2: Total MOSR Collection (Direct and Indirect) 2011-2012

44

6

Acknowledgments
The USAID Democratic Effective Municipality Initiative (USAID DEMI) in Kosovo, funded by the United States
Agency for International Development (USAID), developed this publication on Own Source Revenue
(OSR) in Kosovo to be used by municipal officials, especially finance and property tax department staff, municipal councilors, the business community and other stakeholders throughout Kosovo.
All USAID DEMI partner municipalities have shown extraordinary commitment in building capacities of the
financial department staff, particularly regarding property tax. They understood that increasing OSR is one
of the preconditions for financial independence and can create conditions for numerous investment projects, provide better municipal services which will increase citizens’ satisfaction with services. This publication
is based on this collective work and includes many of the good practices that have emerged from USAID
DEMI’s collaboration with its partner municipalities in Kosovo.
We would like to express our special thanks and gratitude to our USAID DEMI Program Director, Ms. Ginka Kapitanova, as well as Mr. Chas Cadwell, Director of the Center on International Development & Governance at The Urban Institute, and Ben Edwards, Research Assistant at the Center on International Development and Governance
at The Urban Institute, who provided valuable inputs to prepare this publication and assisted USAID DEMI Service
Delivery Unit (SDU) in researching and developing final findings and conclusions addressed in this publication.
Secondly, we would also like to thank other experts and colleagues who helped and supported USAID DEMI
SDU team in researching and developing this complex publication within the limited time frame: Mr. Howard Shapiro, Mr. Tony Levitas and Recura Financial company for their professional research and analysis, and
all USAID DEMI staff for their contribution and continuous support in the implementation of OSR activities
and on the development of this publication.
The USAID DEMI team would like to acknowledge the valuable contribution and professional commitment
of the Ministry of Finance, especially the Property Tax Department lead by Mr. Shkelzen Morina (Director
at Property Tax Department) and Mr. Agron Thaqi (Deputy Director at Property Tax Department), Mr. Petrit
Popova (Director at the Department for Municipal Budget at the Ministry of Finance), Mr. Nusret Koca (Deputy Director of the Treasury) and Ms. Fetije Begolli (Head of the Municipal Budget Division/ MLGA) for their
continuous support to USAID DEMI.
The USAID DEMI team would also like to acknowledge the valuable contribution and professional commitment
of the municipal officials: directors of the Departments for Budget and Finance, and Property Tax Managers in all
USAID DEMI partner municipalities, assembly members and all other staff involved in the OSR process.
USAID DEMI Partner Municipalities in Kosovo: 1
Deçan/Dečani

Kaçanik/Kačanik

Mitrovicë/Mitrovica

Štrpce/Shtërpcë

Fushë Kosovë/Kosovo Polje

Kamenicë/Kamenica

Pejë/Peć

Suharekë/Suva Reka

Gjilan/Gnjilane

Klokot-Vrbovac/Kllokot-Vërboc Parteš/Partesh

Vushtrri/Vučitrn

Gračanica/Graçanicë

Malishevë/Mališevo

Prizren/Prizren

MNAO1

Istog/Istok

Mamuşa/Mamusha

Rahovec/Orahovac

Junik/Junik

Novo Brdo/Novobërdë

Ranilug/Ranillug

Sincerely,
USAID DEMI SDU Team

1

Mitrovica North Administrative Office

Introduction
USAID Democratic Effective Municipalities Initiative (USAID DEMI), USAID’s three year program (August
2010 – August 2013) is dedicated to assisting 21 Kosovo municipalities and the Mitrovica North Administrative Office (MNAO), their leaders and citizens to promote good governance. The program team of
44 international and local staff works closely with local officials and other stakeholders to identify and
achieve key outcomes: more transparent and effective governing, increased citizen trust in government,
improved local services, more robust local economic development, and greater involvement of youth
and women in local development.
The program focuses on the following objectives:
• Strengthened Municipal Administrations
• Empowered Municipal Assemblies
• Improved Municipal Service Delivery
• Promote Local Economic Development
• Increased Civic Engagement in Municipal Governance

The USAID DEMI Service Delivery team works with municipalities to address two very important issues:
• Improving the quality and quantity of municipal services and including citizens and all interested stakeholders in planning and implementation processes.
• Increasing the percentage of Own Source Revenues (OSR) in municipal budgets, and their general collection.
Since strengthening municipal capacities to analyze, plan, collect and strategically use OSR is one of the
main priorities of municipal leadership, USAID DEMI developed a comprehensive program approach to
provide proper tools to municipal administrations and assemblies to address the challenges municipalities face. The following publication analyzes current OSR trends in Kosovo, promotes the achievements
of Kosovo municipalities and presents USAID DEMI’s approach for increasing OSR. The primary findings
are that the political will of elected officials, the team-based approach between different municipal departments, interaction with citizens and businesses as tax payers, and transparent and accountable
practices of collecting and utilizing OSR are the elements to increase OSR collection.

7

By using USAID DEMI’s comprehensive program, 21 partner municipalities increased their OSR
collection. Their achievements are presented below:
Direct Municipal OSR
2011

2012

%

20,149,624

21,785,299

8.12%

Non USAID DEMI (not including Pristina)

12,007,415

11,524,480

-4.02%

Pristina

17,609,402

22,508,744

27.82%

 
USAID DEMI Partners

In order to provide a more representative picture, OSR collection in Pristina municipality has been
considered separately. As the capital city and the largest municipality, Pristina alone accounts for
40% of all Direct OSR in Kosovo (€ 22.5 million). While non-partner municipalities experienced a
4% decrease in Direct OSR collection, USAID DEMI’s 21 partner municipalities increased their collection rate by 8.12%.

Direct MOSR collection 2011-2012
€ 25.000.000

€ 20.000.000

€ 15.000.000
2011

€0
USAID DEMI

Non USAID DEMI
(not including Pristina)

57.93 € per capita

45.32 € per capita

15.01 € per capita

15.64 € per capita

€ 5.000.000

20.16 € per capita

2012
€ 10.000.000

18.64 € per capita

8

Pristina

Direct Municipal OSR vs. General Grant 2004-2012
140,000,000 €
120,000,000 €
100,000,000 €
80,000,000 €
60,000,000 €
40,000,000 €
20,000,000 €

I. General overview of OSR in Kosovo

A. Brief history of OSR in Kosovo1
The Government of Kosovo has prioritized developing a decentralized system of local self-government2. The document “Action Plan On The Implementation Of Decentralization 2008-2010” states
that “the strategic intention of the Government of Kosovo is the creation of a sustainable system and
effective local government throughout the whole territory of Kosovo that will ensure good living conditions for all the citizens of Kosovo paying particular attention to special needs and concerns of the
non-majority communities in Kosovo”. In line with this decentralization objective set by the central
level, municipalities in Kosovo need sufficient financial resources at their disposal to exercise their
competencies and provide quality services to their citizens.
The financial resources of a municipality3 consist of (i) own source revenues (ii) operating grants,
(iii) grants for enhanced competencies, (iv) transfers for delegated competencies, (v) extraordinary
grants, (vi) financial assistance from the Republic of Serbia and (vii) proceeds from municipal borrowing.
To date, there is no unified system for OSR collection. During the post-conflict period, each municipality issued their own Regulations on taxes, fees and charges, based on UNMIK Regulation
2000/45, the legal basis for local self-government institutions, which was later supplemented by
UNMIK Regulation 2007/30. Unsurprisingly, until 2004 OSR collection rates were very low, and
were primarily comprised of fees for various municipal services, construction permits and business
registrations4. The low level of OSR made only a marginal contribution to municipal budgets; municipalities were heavily reliant on central government grants.
Municipal finances have been regulated by various regulations and legislation adopted and enforced by UNMIK5. Currently, OSR is defined and regulated by the Law on Public Financial Management and Accountability (Law No. 03/L-048) and the Law on Local Government Finance (Law No
03/L-049) which lists the following sources of OSR:
a) Municipal taxes, fees, user charges, other payments for public services provided by the
Municipality, and regulatory charges and fines authorized by the present law;
b) Rents on immovable property situated in the municipality and under the administration or
ownership of the municipality;
c) Revenues from the sale of municipal assets;
d) Revenues from undertakings wholly or partly owned by the municipality;
2

Program of the Government of Republic of Kosovo 2008-2011, April 2008.

3

Art. 7, Law No. 03/L-049 On Local Government Finance.

4

Temporary Businesses were temporarily registered at the local level in 2000.

5

E .g. UNMIK Regulation No. 2000/45 on Self-Government of Municipalities in Kosovo, UNMIK Regulation No. 2001/19 On the Management of Public Finances and Accountability, Law No. 2003/2 on Public Financial Management and Accountability promulgated by
UNMIK Regulation No. 2003/17 and other specific legislation concerning various sources of OSR such as vehicle registration.

9


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