Local Govt Fiance

Chapter – XVII

Local Government Finance

77. 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:
the proceeds of Taxes, tolls, fees, rates or charges levied by the local

government;

grants made to or moneys received by the local government from the Government or other sources;
rents and profits payable or accruing to the local government from immovable property owned or otherwise vested in or controlled or managed by it;
proceeds or any other profits from any investment;
gifts, grants or contributions to the local government by individual or institutions;
income accruing   from   markets   or fairs    regulated              by the     local government;
fines and penalties imposed under the Act;
proceeds from other sources of income which are placed at the

. disposal of the local government under directions of the Government;

all moneys transferred to the local government by the Government;
U) moneys transferred by another local government under the Act; and

(k) income accruing on floating of municipal bonds for raising funds for financing municipal projects duly approved by the Government on the recommendations of Finance Commission.

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 all 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:

Provided that in case of delayed transfer, the local government may make a

reference to the Finance Commission for such delay in the payment.

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

receipts accruing from trusts administered or managed by the local government;
refundable deposits received by the local government; and
deferred

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

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

Custody of Local Fund and Public Account- The moneys credited to the Local Fund or the Public Account of a local government shall be kept and operated in separate accounts of local government in such matter as may be
Charged Expenditure- (1) The following expenditure shall be charged upon the Local Fund:
the money required for repayment of loans; .
the money required to satisfy any judgment, decree or award against the local government;
the money required by the Government to contribute for deferred liabilities of the local government; and
such other expenditure of local government as may be directed by the Secretary, in case of a calamity or an urgency.

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

Provided that in case of a dispute, the Commission shall conduct hearing and decide the matter.

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

A local government may transfer approved budgeted amounts to any local government, 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, in such manner as may be prescribed.

The application of Local Fund shall be subject to the budgetary constraints and according to the minimum specified ratio of development and non-development

The development budget shall be prioritized in accordance with the bottom-up planning system as laid down in section 83 of the Act

Provided that:

not more than twenty percent of the development budget shall be set apart for utilization in accordance with the provisions of section 83 of the Act; and
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 development budget for maintenance and repair of existing infrastructure and provision of earlier initiated services.

Every local government shall allocate two percent of its budget for sports and cultural
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 development funds under any demand for grant or appropriation in excess of funds calculated for remaining period per month on pro-rata basis of the budgeted funds for the that financial year as per formula below:

Available Amount = (Number of remaining months/ 12) x Total Development

Budget

In every budget, a provision may be made for payment of such performance incentive bonuses linked for achievement of Key Performance Indicators set by the local government for that financial year.
The expenditure from the Local Fund 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.

Budget preparation- (1) The annual budget for a local government shall contain estimates of:
grants from the Government;
amounts available in the Local Fund;
receipts for the next year; and
expenditure to be incurred for the next
The Government shall, sufficiently before the beginning of each financial year, notify the provisional share which may be credited to the Local Fund from the provincial allocable amount.
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.

A demand for a grant shall not be made except on the recommendation of the

Head of local government.

5)  The 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.

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 83 of the Act.

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.

Approval of budget – (1) Before commencement of the next financial year, the Head of a 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.

The budget of a local government shall be approved by simple majority and the local government shall not take up ahy other business during the budget session.
The Finance Commission may review approved budget of a local government, and if found contrary to the budget rules, may require the local government to rectify it.
A budget shall not be approved·. if the sums required to meet estimated expenditure including previous liabilities and commitments exceed the estimated receipts.
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.
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).
In case, a local government fails to pass the budget within the extended period as specified in subsection (6), the. Secretary after approval from the Minister shall prepare, approve and authenticate the budget of the local government for full year.
After approval of the budget by a local government, the Head of local government shall authenticate under his signature a schedule specifying:
grants made or deemed to have been made by the local government and
sums required to meet the expenditure charged upon the Local
The budget authenticated under subsection (8) shall be laid before the House of the local government but shall not be open to discussion or vote.
The authenticated budget shall be communicated to the local government functionaries, accounts officials, the Secretary and the Commission and post on the official website or a portal designated by the Department for this purpose.
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.
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.
A development scheme identified by the Community Based Organization and approved by a local government shall be funded at the ratio of not less than twenty percent by the Community Based Organization and not more than eighty percent by the local government concerned:

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

the prescribed departmental procedure for estimating the cost of the scheme has been followed;
the estimating officer certifies that the scheme meets the requirements laid down by law;
the Community Based Organization has deposited its share of the cost of the development scheme with the concerned local government;

the complete departmental estimates and the proof of deposit of the

contribution of Community Based Organization are attached; and

the scheme has been approved by the competent authority, in the prescribed manner:

Provided further that the share deposited under subsection (2) by Community Based Organization shall become part of the local fund of the local government.

The scheme approved under subsection (2) shall be funded from the amount

allocated in the annual development budget.

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.
The respective local government shall authorize an officer 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.                                                                 ·

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.

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 under subsection (6) are exhausted.
The funds for Community Based Organization under section 80 of the Act shall be communicated to the authorized officer under subsection (5).

J9)  The identified schemes shall be included in the budget before submission to the respective Council.

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.
The schemes approved by the respective Council shall be carried out by a local government in such manner as may be
The share deposited by a Community Based Organization may be refunded by approval of the Head of local government, in the manner as may be prescribed, if the scheme is not approved under subsection (10) or execution not

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, Deputy Mayor, Vice Chairperson or, a member of the local government:

Provided that h6noraria and allowances shall be allowed only in one capacity.

0
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 prescribe d by the Auditor-General of Pakistan.
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.
The Secretary of a Union Council, shall maintain the accounts of the Union Council and shall display the monthly statement of receipts and expenditures in the office of Union Council.
The Accountant General or District Accounts Officer of the District shall maintain the accounts of the devolved offices managed under the respective District Local Government Authority;

a
The Provincial Director, Local Fund Audit of the Government shall pre-audit all the payments from the Local Fund of local government other than the devolved offices managed under the respective District Local Government Authority.
The Accountant General or the District Accounts Officer shall pre-audit all the payments from the Local Fund of the devolved offices managed under the respective District Local Government Authority.
A local government shall not withdraw or disburse money from the Local Fund unless it is pre-audited in the prescribed manner.
The Provincial Director, Local Fund Audit and the Accountant General shall, by fifteenth day of July of each year 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.
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: Provided that the quarterly accounts of all local governments shall be published on the website or a portal designated by the Department and presented to the members of the Council.
The Authority performing pre-audit shall be equally responsible for all the payments
Audit- (1) The Auditor-General 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.
The Auditor-General shall audit the accounts· of a local government in such form and manner as he may deem appropriate.
The audit report of the Auditor-General shall be considered by the Public Accounts Committee of the Provincial Assembly of the Punjab.
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, the Provincial Director Local Fund Audit, chartered accountant firm or any other agency.
After the receipt of special audit report of a local government, the Government may, after enquiry by the Commission, take appropriate action on the recommendations of the Commission.
LocaI government debt and investment- (1) A local government shall not incur any debt without approval of the Government.
The Government shall notify a list of permissible securities, investment instruments and financial institutions, where a local government may invest surplus funds.

Source: Punjab Local Government Act 2025, Chapter XVII, Sections 77 to 87