Chapter VII. Public Finance
The Public Finance of the state is based on the following principles:
- The financial system works as one unit.
- Transparency and accountability in public finance.
- Division of national revenues in a fair and equitable manner between the different levels of government.
- Preparation of government budgets in a manner that ensures fair and effective service delivery and increases the efficiency of the national economy.
- Rationale use of public resources to achieve sustainable development and preservation of the rights of future generations.
- Empowers the various levels of government to realize autonomy and equity in the collection, management and spending of their financial resources.
- Clear, public and regular financial reports to be made available to the general public.
The National Revenue Fund
- A National Revenue Fund shall be established to which all national revenues are to be deposited; including:
- Taxes, customs duties and fees imposed under a federal law.
- Revenues from sale of oil and gas and other natural resources.
- Proceeds of public federal properties or any other federal assets.
- Fines, penalties and compensations generated by the federal government.
- Transfers from federal public institutions and agencies.
- Profits and dividends generated by federal State-owned enterprises or which the Federal Government is a shareholder.
- Federal government loans.
- Any other funds received by the federal government from any other source.
- Monies are withdrawn from the National Revenue Fund according to the Revenue Division Act.
National Revenue Division Act
- Under the Revenue Division Act, estimated annual national revenues shall be divided amongst the federal and regional governments, wiliyas, districts and the cities of Sana’a and Aden with due consideration to the following criteria:
- Equitable and fair division of national revenues between the different levels of government.
- The national interest.
- Payment of national debt or any other national liabilities.
- The responsibilities and needs of the federal and regional governments, wilayas, districts and the cities of Sana’a and Aden, which shall be determined based on objective criteria.
- Financial capacity of the regional, wilaya and district governments.
- Reducing economic disparities between and within each region, wilaya and districts with the aim of creating equal opportunities.
- Responsibilities of producing regions, wilayas and districts to support economic development, particularly the responsibilities for the exploitation and extraction of natural resources.
- Obligations of regions, wilayas and districts under federal laws.
- Achieve stability and predictability with regard to allocation of revenue shares.
- Flexibility to respond to humanitarian emergencies and other temporary needs.
- Shares from the revenues of natural resources including oil and gas in accordance with the law.
- The Revenue Division Act shall include:
- Determination of the equitable share of the Federal Government and governments of regions, wilayas, districts and the cities of Sana’a and Aden.
- Determination of the equitable share of each region from share of the regions.
- Determination of the equitable share of each wilaya from the share of the wilayas.
- Determination of the equitable share of each district from the share of the districts.
- Determination of the equitable share of the cities of Sana’a and Aden.
- The Revenue Division Act must include a payment schedule for transfers from the National Revenue Fund for the new fiscal year.
- Any surplus in the National Revenue Fund at the end of the fiscal year shall be carried forward to the next fiscal year.
The National Revenue Fund Board
- The Board of the National Revenue Fund shall consist of:
- The federal minister of finance, chairman of the board.
- Regional finance ministers.
- One representative to be selected by the wilayas and districts within each region.
- Finance officers in the cities of Sana’a and Aden.
- The National Revenue Fund Commissioner, a deputy or anyone invited by the Board shall attend meetings of the National Revenue Fund.
Functions of the National Revenue Fund Board
The National Revenue Fund board shall have the following functions:
- Approval of the draft annual National Revenue Division Act and its explanatory note.
- Presentation of the draft Revenue Division Act, with all supporting documents, to the federal legislature no later than two months prior to the start of the fiscal year.
- Monitoring the National Revenue Fund status and its management and proposing measures to improve performance.
- Provide advice on financial matters which may impact the regions, wilayas, districts and the cities of Sana’a and Aden, upon the development of federal legislations, borrowing and raising of tax by any level of government.
- Any other functions provided by law.
National Revenue Fund Management
The selection of the National Revenue Fund Commissioner shall be based on the mechanism and conditions required for selection of members of independent institutions and shall be appointed by the President of the Republic.
The Commissioner of the Fund shall assume the following functions:
- Management of the Fund in a transparent and effective manner.
- Preparation of the annual Revenue Division Act and presentation to the board five months before the start of each fiscal year accompanied by a report on the application of criteria set forth in Article 3) of this chapter in the draft law.
- Ensures the flow of all national revenues to the Fund in accordance with the Constitution and the Law.
- Ensures the soundness of all transfers from the National Revenue Fund in accordance with the Constitution or the Revenue Division Act.
- Presentation of a report on financial data and the management of the National Revenue Fund to the federal legislature within three months from the end of the fiscal year.
The Federal Legislative Authority shall adopt the Revenue Division Act before the start of the fiscal year. If this proves unattainable, the law of the preceding year shall continue to be in effect on conditions that every transfer on the schedule of payment shall be reduced by 5% and such transfers shall be considered as part of the transfers to be approved later in the Revenue Division Act.
Taxes and fees
The State shall be committed to develop an equitable, fair and effective tax scheme, improve collection mechanisms of State revenues, combat fraudulent practices and practices resulting in the reduction of tax burden and tax evasion.
The following taxes and fees shall be raised under a federal law:
- Personal income tax.
- Corporate tax.
- Value Added Tax.
- Customs and export taxes.
- Capital gains tax.
- Taxes and fees relevant to the exploration and exploitation of oil, gas and minerals.
- Any other taxes and fees.
Each level of government may levy fees, fines and service charges within the spheres of their competence.
- The following taxes and fees shall be levied under a regional law:
- A flat rate sales tax.
- Business startup fees.
- Wages and salaries tax.
- Excise tax to be collected at the point of production.
- Drivers and vehicles licensing fees.
- Taxes and fees for road use.
- Tourism taxes and fees.
- Environmental taxes and fees.
- Other taxes and fees, except for taxes included in the preceding article.
- Flat rate additional taxes and surcharges may be imposed by a regional law above the following taxes and fees raised under the federal law:
- Personal income tax.
- Corporate tax.
- Taxes on the exploration and exploitation of onshore oil, gas and minerals.
- Any other tax or fees imposed under a federal law, except VAT, customs duties, taxes and fees on the exploration and exploitation of offshore oil, gas and minerals. The maximum limit of the additional taxes and surcharges shall be determined by a federal law.
- A Wilaya’s council may impose a real-estate tax or any other tax under a federal law.
- The Wilaya and district councils may raise fees under a law.
- Additional revenues raised by regions and local governments may not be deducted from their shares of national revenue or from any allocations made from the federal revenue fund.
- The National Revenue Fund or the Federal Revenue Fund shall not be considered obligated to compensate regions, wilayas, districts and the cities of Sana’a and Aden if there is a decrease in the revenue that is collected.
A federal law shall determine the conditions under which the federal government may conclude loans, guarantees thereof, and the required government procedures and guarantees.
A federal law shall determine the conditions under which the governments of regions, wilayas and the cities of Sana’a and Aden may borrow and the required government guarantees.
Loans may not be concluded unless approved by the House of Representatives and the Federal Council. Loans shall be issued under a law showing value of the loan, subsequent financial obligations and the purpose for concluding the loan agreement based on a detailed study, guarantees and repayment mechanisms.
A federal law shall establish a federal revenue fund and treasury and funds and treasuries for the governments of regions, wilayas, districts and the cities of Sana’a and Aden to deposit each of their shares from national revenues and own revenues. The respective treasury shall undertake the management of its own revenue fund. The modality for composition and other functions of the treasury shall be defined by law. No withdrawals may be made from any revenue fund unless by a budget law enacted by the respective legislative authority.
A federal law shall stipulate national criteria and measures to ensure transparency, accountability, integrity and the effective management of public funds and resources by State institutions and agencies at all levels, and shall include:
- Accredited accounting practices.
- Standardized expenditure classification.
- Standardized financial reporting rules.
- Uniform standards and rules of financial management.
- Each level of government shall have an annual public budget approved by the competent legislative authority at each level.
- A federal law shall regulate the structure of the public budget and budget formulation deadlines at each level.
- The public budget shall include revenue estimates and detailed projected expenditures.
- No public money may be spent except within the approved budgets.
State institutions, at all levels, in concluding goods and services contracts and disposition of public funds, shall abide by a fair, equitable, transparent, competitive and cost-effective system to be regulated by law.
The Central Bank
The Central Bank is a national independent institution responsible for the development and implementation of the State’s monetary, credit and banking policies and exercises oversight thereof with the aim of promoting balanced and sustainable economic growth. It shall endeavor to maintain cash and rate of exchange stability, oversees the banking sector, issuance of currency and possession and management of official foreign reserves. A federal law regulates other functions of the Bank and the composition of its board.
The National Revenue Authority
A national organization shall be established to assume the power of collecting national revenue in the form of taxes and fees. A federal law shall regulate its competences, mechanism of work and management and composition to ensure equitable representation of regions.