Govt estimates multiplied revenue rise at local level

Local councils to raise taxes on property, house rent, land and buildings, vehicle ownership, services and advertisement, etc

Jul 23, 2017-Newly elected local councils stand to generate over the next two years revenues more than four times their collection in the fiscal year 2015-16 in the old structure, according to a government estimate.

Based on the budget estimates, the internal revenue collection of local units would be at least Rs35 billion after two years from the Rs8 billion earned two years ago.

The revenue projection comes as the government faces criticism over the provision in the bill on Inter-government Financial Management that envisions sharing just 5 percent royalty from natural resources with the local units.

According to Dinesh Thapaliya, secretary at the Ministry of Federal Affairs and Local Development (MoFALD), the estimate was based on a calculation of taxes that the local units could collect and a potential rise in tax rates.

The constitution authorises the local units to raise taxes on property, house rent, land and building registration, vehicle ownership, services, tourism, advertisement, business, entertainment and land revenue.

“Most of the tax rate has not been revised since 1999, when the Local Self-Governance Regulation came into effect,” said Thapaliya. “Revised rates will help 

boost internal revenues of the local units.”

Due to their insufficient income, almost all the local bodies have so far depended on cash transfers from the centre even to meet their administrative costs.

According to the latest report of the Local Bodies Fiscal Commission, the old bodies had been able to generate only 20 percent of the total expenditure through internal resources. In the fiscal year 2015-16, Village Development Committees had no contribution to internal resource collection of local bodies, according to the report.

However, experts say that higher revenue collection by local units in the upcoming years would reduce their dependency on the centre.

Khim Lal Devkota, an expert on fiscal decentralisation, said the high revenue collection target set by 

various local units in their annual budgets suggests 

that they could gather more revenue than the government estimate. 

For example, the Kathmandu Metropolitan City has projected its revenue collection at Rs4.36 billion while the Pokhara Lekhanath Metropolis aims to collect Rs1.38 billion in internal revenue in the fiscal year 2017-18. Pokhara Lekhnath’s revenue projection for the new 

fiscal year is four times the amount it collected last fiscal--Rs333 million.

However, there is concern among the stakeholders whether the government is ready to allow the local 

units more resources since the bill proposes an 85 percent share for the centre and 

10 percent for the provincial government.


Proposed fiscal arrangements

  • Central government allowed to collect 14 taxes and 8 fees
  • Provincial government allowed to collect 8 taxes and 2 fees
  • Local government allowed to collect 9 taxes and 6 fees
  • 15 percent of income generated from VAT, and excise duties imposed on domestic products to go to local bodies, 7 percent to provinces and 78 percent to federal government
  • 5 percent of royalty generated from use of natural resources, namely mountains, hydropower, forests, and mines and minerals, to go to local bodies, 10 percent to provinces and 85 percent to central government
  • Provinces and local bodies to get four types of grants: fiscal equalisation, conditional, matching and special
  • Provinces and local bodies allowed to float instruments to raise public debt
  • Mandatory for local bodies to present annual budget within 15th day of Nepali calendar month of Asar (end of June)
  • Mandatory for provinces to present annual budget within the 1st day of the Nepali calendar month of Asar (mid-June)
  • Mandatory for central, provincial and local governments to introduce medium-term expenditure framework comprising expenditure projection of three years

Published: 23-07-2017 07:07

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