Kathmandu, February 1

The Ministry of Federal Affairs and General Administration has issued a circular to all local levels, directing them to implement the recommendations made by a report of a special committee recently submitted to the Ministry of Finance.

The study report had recommended that the government take necessary measures to make the local levels aware about the taxes they are authorised to levy and collect as there was 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, and lack of knowledge on the part of elected representatives and the general public.

The circular issued by Resource Mobilisation Coordination Section of the MoFAGA urged the local levels to notify the people and taxpayers in their concerned areas about the taxes and service fee being charged by them.

The MoFAGA conceded that local levels were confused about their taxing powers as they were exercising this power for the first time.

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 there from 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 Financial 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 the report prepared by a three-member team under the coordination of Dinesh Kumar Thapaliya, secretary at the Ministry of Federal Affairs and General Administration.

As per the recommendation of the report, the MoFAGA has also urged the local levels to make assessment of justifiable tax rate on the basis of nature and investment of any business in their concerned areas.

Some local levels were found to have granted exemption to various taxpayers in old due tax, raising a fear of letting them off the tax net. “The report has strongly recommended against granting such exemptions,” the MoFAGA said.

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.

According to the report, many rural municipalities are implementing the tax system without adequate preparation and discussion with stakeholders. 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.