Legal contradictions put local levels in a fix

Kathmandu, January 6

A study conducted by the government shows that there has been duplication and confusion in collection of taxes and fees in all three levels of government — federal, provincial and local — due to contradictions in constitutional and legal provisions.

Schedule-9 of the constitution has a provision of tourism fee as a concurrent power of the federal, provincial and local levels, but the revenue generated therefrom is termed ‘concurrent power’ in some places and ‘exclusive power’ in other places, thereby resulting in confusion in collection of tourism related tax and fee.

Similarly, Section 55 of the Local Government Operation Act requires all levels to levy integrated property tax. Most of the rural municipalities and municipalities made preparations for imposing integrated property tax accordingly. However, the Finance Act  amended that section to substitute the integrated property tax with property tax.

“The provision of integrated property tax covered building and land, but the new provision of the Finance Act allows local levels to levy tax on the building and its plinth area only,” states a study report prepared by a three-member team under the coordination of Dinesh Kumar Thapaliya, secretary at the Ministry of Federal Affairs and General Administration. The report was recently submitted to the Ministry of Finance as per the decision of the Council of Ministers.

Various provinces and local levels have been exercising the powers to levy taxes on their own accord. During discussion with stakeholders, it was found that some of the provincial and local levels had been imposing taxes beyond the

legal boundary, while others had yet to exercise their powers despite having tax potentialities.

Until the previous fiscal, district coordination committees had been selling and managing construction materials like stones, pebbles and sand on the basis of legal provisions stipulated in the Local Self Governance Act. “Lack of clear provisions regarding the sale and export of construction materials in any federal law has caused confusion among the local levels in the management of such resources. Under these circumstances, some local levels have been making arrangements of contract for sale and export of construction materials pursuant to Sub-Section (2) of Section 11 of the Local Government Operation Act, while others are imposing tax on such materials on the basis of provincial laws,” the study states.

“As some local levels had already awarded contract for sale and export of construction materials prior to enactment of provincial laws, there is difficulty in adjusting the contracts with the provincial laws,” it adds.

As per a high court order, no one is allowed to extract river products by using excavators, bulldozers and other heavy equipment in Gandaki Province. But the provincial law states that heavy equipment might be used by conducting Environmental Impact Assessment. “It has created a state of confusion among the local levels regarding the use of heavy equipment in extracting river products,” the study states.

According to the study, many rural municipalities implemented the tax system without adequate preparation and discussion with stakeholders. “Prevailing laws do not have the provision of export tax on transportation of agricultural, livestock and forest products as practiced before, but some local levels are still not clear whether they should levy tax on such products,” it states.

Some municipalities were found collecting pollution tax, which has not been stipulated in any laws and rules. Similarly, others had been collecting business tax in flat rate instead of imposing it on the basis of transactions. “Most of the local levels have not conducted study on revenue potentiality and formulated revenue improvement planning,” the report adds.

The study has recommended that the government enhance capacity of the local levels so that they can fully utilise their revenue powers, make necessary arrangements for effective implementation of the laws, make and amend the laws and prohibit collection of taxes against the laws, among others.