The constitution of Nepal has listed basic education as a prerogative of the local government which will also include the financing of the education. As local government will require funds in order to finance the basic education, an important thing to look into will be the various sources through which the local government can generate funds.
Article 60 of the Constitution of Nepal grants local governments to generate revenue though taxes, fines and fees on matters relating to their jurisdictions. The same article also lays down the basis by which local government can receive funds from federal and provincial governments. Inter-Government Financial Management Act, 2017 furthers this provision and specifies four different categories of grants that local governments qualify for.
On the recommendation of Natural Resource and Fiscal Commission (NRFC), the federal government can distribute fiscal equalisation grant on the basis of expenditure need and revenue generation capacity of provincial and local governments; the provincial government will further distribute fiscal equalisation grant to the local governments on the basis of the same principle.
Federal government, according to criteria set by the NRFC, can distribute conditional grant to provincial and local governments to implement their programs. Likewise, provincial government can grant conditional loans to local governments on the basic of provincial law and criteria set by NRFC.
Additionally, there is a provision for the federal government to provide complementary grant to provincial and local governments to implement infrastructure development projects. Also, provincial government as per their law can distribute complementary grant for infrastructure development to local governments.
Finally, there is a provision for federal government to provide special grant to provincial and local governments and likewise for provincial government to provide special grant to local governments for implementation of the special plans and programs as mentioned in Section 4 of Inter-Government Financial Management Act, 2017.
Apart from these, local government can also generate funds through borrowings. Local government can apply for the loans with the federal government specifying the use of fund, methods of repayment and the time within which the amount will be repaid and, receive loan from the federal government.
Also, local governments, following the limit recommended by NRFC and by taking permission from the federal government, can acquire funds through internal borrowing.