Money
Local bodies to get share of taxes, royalty from mid-July
Newly formed local bodies will have to wait until the next fiscal year to get their share of revenue generated from value added tax and excise duty, and royalty generated from use of natural resources.Newly formed local bodies will have to wait until the next fiscal year to get their share of revenue generated from value added tax and excise duty, and royalty generated from use of natural resources.
This is one of the provisions included in the Intergovernmental Fiscal Transfer Bill ratified by Parliament on Friday.
As per the Bill, which will soon be signed into law, local bodies will get 15 percent of the income generated from value added tax (VAT), and excise duty imposed on domestic products.
Of the remaining 85 percent, 15 percent will go to provinces and 70 percent to the federal government.
The tax and duty will be distributed based on indicators and formulas devised by the National Natural Resource and Fiscal Commission.
These indicators and formulas can only be revised every five years, says the Bill.
Local bodies and provinces will also get royalties generated from use of natural resources, namely mountains, hydropower, forests, and mines and minerals.
The Bill has recommended splitting 50 percent of the royalty generated from the use of these resources equally among the local body and province.
The remaining 50 percent of royalty generated from use of natural resources
will go to the central government.
“If the use of natural resource has affected more than one local body or province, the royalty must be shared in an equitable manner,” says the Bill, adding, “The central government must distribute royalty and revenue generated from VAT and excise duty among local bodies and provinces from the first day of the fiscal year 2018-19 [which falls in mid-July].”
This income distribution mechanism is expected to financially empower newly formed local bodies and provinces.
Nepal has created 753 local bodies and seven provinces since the promulgation of the new constitution in September 2015, which has paved the way for the country to move from unitary to federal government system.
The new constitution has devolved enormous decision-making powers to local bodies and provinces, especially to local bodies, which now shoulder responsibility to cater basic public services, like health and education, and build basic infrastructure. This is expected to require huge financial resources.
To ensure local bodies and provinces do not lack funds, the newly ratified Bill has allowed extension of four types of grants: fiscal equalisation, conditional, matching and special.
Fiscal equalisation grant will be extended on the basis of fund requirement of local bodies and provinces, and their ability to generate revenue.
Conditional grant will be provided in accordance with situation of infrastructure, and national policies, programmes, norms and standards.
Both these grants will be extended to local bodies and provinces based on the recommendation made by the National Natural Resource and Fiscal Commission, which should be formed by the Constitution Council.
The other two grants-matching and special-will be made available by the central government on the basis of need of provinces and local bodies.
The matching grant, for instance, will be provided to provinces and local bodies for infrastructure projects based on feasibility and cost of projects.
Factors such as project’s impact on society, availability of financial, physical and human resources required to implement the project, and the project’s importance will also be taken into account while extending the matching fund.
Special grant, on the other hand, will be extended to provide basic public services, such as education and health, and to promote socio-economic development in communities left behind.
“The central government must provide estimates of grants that every local body and province is likely to receive within mid-April,” says the Bill.