The Finance Ministry has ratcheted up the ongoing dispute with the Kathmandu Metropolitan City (KMC) over collection of house rent tax, claiming that the central government has the jurisdiction to collect this tax.

As per schedule 8 of the constitution, house rent tax falls under the jurisdiction of the local government. The KMC has been charging 12 percent rental tax from house owners based on the Municipal Council’s decision of July 15. Earlier, the tax authority under the central government had been charging 10 percent and the local governments were charging 2 percent as house rent tax.

But the Finance Ministry has argued that the house rent tax is a part of the income tax as per the Income Tax Act and thus comes under the jurisdiction of the central government as per the schedule 5 of the constitution.

“We have responded to the KMC a week ago, saying that we will continue collecting house rent tax as it falls under the central government’s jurisdiction as per the constitution and the law,” said Bishnu Nepal, chief of the Revenue Department at the Finance Ministry.

The central government had collected Rs8.5 billion in taxes from house and land owners against rental income in the last fiscal year 2016-17, according to the ministry.

With the Finance Ministry and the KMC each sticking to their own interpretation of the constitutional provision on tax collection, this has forced people to be liable to pay double taxes to the government. “The constitutional provision is clear on who is responsible for collecting this tax. We have been collecting the tax based on Financial Bill passed by the Municipal Assembly,” said KMC Spokesman Gyanendra Karki. “Some taxpayers have come to us informing us that they paid to the central tax authority but we have not forced them to repay again.”

While the KMC has resorted to a showdown with the central government, the Lalitpur Metropolitan City has decided to collect only 2 percent rent tax as per the past provision until the issue is settled through the endorsement of Bill on Inter-Governmental Financial Management at Parliament.

“Our Municipal Assembly has passed Financial Bill with a provision of charging 12 percent house rent tax. Our revenue estimate is based on assumption that we are authorised to collect all house rent tax,” said Hari Prasad Dahal, executive officer at the Lalitpur Metropolis.