Devolving to Local Governmts The improvement was over two the three times faster between 2001 and 2008 with district governments and union councils in place under the Devolution Plan than between 2008 and 2019. There is evidence also that the presence of district governments spanning both urban and rural areas of a district have led to a reduction generally in the urban-rural gap. Case for Two-Tiered System for Local Government: There is need for the top tier of local government to have enough capacity for delivery of basic services and collection of revenues from local levies. At the other end there is need for a lower tier in the form of Union or Village/Neighborhood Council to reveal preferences for expansion of services and to exercise ground level accountability on the provision of services like teacher absenteeism, availability of medicines, supply of drinking water, etc. Therefore, the case for an intermediate tier may not be so strong. Allocation of Functions on the Subsidiarity Principle: There is need to follow the subsidiarity principle, as defined above, in the allocation of functions between Provincial and Local Governments. For example, the latter could also play a role along with the two tiers in identification and provision of subsidized credit to small farmers or in food-for-work programs. The Need to Link Taxation with Benefits: The motivation of taxpayers to pay due taxes is enhanced if they see a greater link with benefits received from the revenues. As such, the property tax and the local rate need to be in the domain of local fiscal powers. Further, collection responsibility must rest with the top tier of local government to ensure proper assessment and collection. Setting up of a Municipal Development Fund: Metropolitan areas like Karachi and Lahore frequently require lumpy investments for expansion of local services. A Municipal Development Fund may be created for flotation of tax-free Municipal Bonds to finance these investments. Countries like India have in place such funding mechanisms. Ability to service this debt is high in Metropolitan cities. Criteria for Horizontal Sharing of Provincial transfers: The criteria should be based on objective and relatively up to date measure at the district level of the incidence of poverty, level of human development or access to infrastructure and services to avoid disputes among local entities. Representation of Special Interests: There is a strong case for allocation of 1/3 rds of the seats to women in the local council of the top tier of local government. Also, there should be at least minimum representation of workers, peasants, minorities, youth, and technocrats. Local Share in Mineral and Natural Resource Taxes or Income: The local government in a district which has oil, gas or other mineral resources which are being exploited and 85