DISSECTING FISCAL CONSIDERATIONS FOR FEDERAL NEPAL

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Economy

Part 5 of the Constitution of Nepal provides the structure of the state and the distribution of power among three orders of government. Each order of the government then can make laws, their respective annual budgets, formulate and implement their own policies and plans. This power is a core fundamental of the Federal principle.

The Constitution states that the Federal government has the responsibility to make necessary policies, standards and laws on any matter listed in the concurrent list. It also has the power to obtain foreign assistance and borrow loans to ensure macro-economic stability of the entire economy, and handle major issues of management of budget deficits and fiscal discipline. Article 60 of the Constitution talks about the provision of imposition of taxes on matters falling within their respective jurisdictions and collection of revenue from these sources. Those provisions relating to the concurrent list and other matters that are not included in any list lie with the Federal Government. Concurrent sharing of revenues is seen in the form of revenue from natural resources, tourism fee, service charges, penalty and fines which are shared as per the Fiscal Commission discussion.

The “Intergovernmental Fiscal Arrangements Act, 2017” provides necessary provisions for revenue generation, revenue sharing, grants, loans, budget arrangement, public expenditure and fiscal discipline. As per the Act, the Federal Government can levy taxes and raise non-tax revenues as specified in Federal law. The state and local governments can also impose taxes so long as they do not contravene with the Federal government’s economic policies and provisions for transportation of goods and services, capital and labor.

The three orders of government determine non-tax revenues by factoring for the cost of goods or services, operation cost and maintenance cost. The tax and non-tax revenues are collected as per single tax administration system. For example, while collecting motor vehicle tax, the state collects the same tax imposed by the local government as well. On the other hand, the local governments will be collecting building and land registration fees that are levied by the state. These governments deposit the revenues raised not exceeding 2% of the tax collected as administrative cost and remaining amount in the Consolidated Fund of the same level whose tax is collected.

Read More about Dissecting Fiscal Consederation in one of my article in Himalayan Times on April 1, 2018.

Sujan Regmi

About Sujan Regmi

Sujan Regmi is a researcher at Samriddhi Foundation.

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