The local level governments have sought return of the house rent tax collected by the central after the latter decided to allow the local governments to raise such taxes. The local and central governments had been at loggerheads over the jurisdiction of collecting house rent tax.

The federal government, in line with the Cabinet decision of March 26, issued a notice in Nepal Gazette on April 23 allowing the local governments to raise house rent tax. As per Schedule 8 of the constitution, house rent tax falls under the jurisdiction of the local government. However, the Finance Ministry continued raising the tax arguing that it was part of the income tax as per the Income Tax Act and thus comes under the central government’s jurisdiction as per Schedule 5 of the constitution. Following the notification on Gazette, the local governments have asked the central government to return the amount collected as house rent tax so far in this fiscal year.

“After the Cabinet endorsed our position that the house rent tax falls under the local government’s jurisdiction, we have written to the Finance Ministry to return such tax collected so far from our metropolis,” said Hari Prasad Dahal, executive officer at Lalitpur Metropolitan City. “Our budget estimate is also based on the potential income through house rent tax. We need the resource to finance the development projects as provisioned in our annual budget.”

As per the earlier provision, both the central and local governments had been collecting rent tax separately. House owners were paying 10 percent of the total rental value to the central government in rent tax, and 2 percent to the local government.

One of the local units defying the central government’s position was Kathmandu Metropolitan City (KMC). It had been collecting the entire 12 percent house rent tax. According to the KMC, it collected around Rs210 million in house rental tax until mid-April. However, with both the central government and KMC collecting taxes under the same heading, the general public has been at the receiving end. “We are holding discussions with the Finance Ministry to return the

house rent tax it had raised from the public,” said Gyanendra Karki, spokesperson for the KMC.

Likewise, Pokhara Lekhnath Metropolitan City said that it expected house rent tax raised by the central government would be returned as part of the equalisation grant through next fiscal year’s budget. “We have collected only 2 percent tax on house rent in line with the old provision. After the government decision, the rest of the taxes raised by the central government should come to the metropolis,” said Yam Lal Adhikari, deputy chief administrative officer at Pokhara Lekhnath Metropolitan City.According to the Cabinet decision, Inland Revenue Offices would provide details of taxpayers of the last three years to the local governments. It also empowers the local units to certify the income of the

taxpayers. Officials of three metropolises said they have not had details about the taxpayers from the central government.