Escolar Documentos
Profissional Documentos
Cultura Documentos
June 2008
iii
Table of Content
1
References..............................................................................................25
iv
List of Tables
Figure 1: Factors influencing the situation of local government finance in Nepal.............2
Table 2: Revenue titles for municipalities..........................................................................3
Figure 3: Municipal revenue composition in Nepal............................................................5
Figure 4: Municipal tax revenue composition in Nepal......................................................6
Figure 5: Municipal tax revenue composition in Nepal (excluding LDF and former octroi)
.............................................................................................................................7
Figure 6: Municipal revenue composition in Nepal as a share of annual total revenue..10
Figure 7: Growth rates of selected municipal revenues to previous year.......................12
Figure 8: Growth rates of selected municipal revenues to previous year.......................13
Figure 9: Total revenue and total population in the fiscal year 2005/2006......................16
Figure 10: Per capita revenue and total population (excluding Kathmandu) in the fiscal
year 2005/2006..................................................................................................17
Figure 11: Grants allocated to municipalities...................................................................19
Figure 12: Grants by type allocated to municipalities......................................................20
Figure 13: Design principles of local taxation..................................................................22
Please note: This document is best viewed with Adobe Acrobat Reader 8.0. A print-out of this document in black and white cannot display the originally coloured figures.
interpublic berlin
Dr. Alexander Wegener
interpublic berlin Wegener & Wegener GbR
Sundgauer Strae 100
D-14169 Berlin (Zehlendorf)
Tel.:
(030) 939 555 90
Fax:
(030) 939 555 91
info@interpublic-berlin.de
The declaration of the Republic of Nepal marked the end of a long-lasting monarchy and gives opportunities to design a political system that fits most the ethnic diversity and the urgent need of social inclusion and participation in Nepal. However, the functionality of a political system is heavily
dependent on the design of public finance and intergovernmental transfers, apart from the administrative system, and the design of the judiciary system
This report points out
the need for a re-design of local government finance, taking into account the experiences made,
proposes an optimal revenue composition of local government
deals with the need for a LDF replacement
summarises policy recommendations on
optimal revenue composition for local government
optimal local taxation
grant allocation scheme
Municipal, as well as local government finance in general in Nepal is at the crossroads. Some major strategic decisions have to be taken, and they are embedded within the current political decision-making process on the type of federalism the newly born Republic of Nepal will establish.
Given the large ethnic diversity, the ongoing problem of social inclusion, and the need to establish
sound participation opportunities, local government finance in Nepal is an important issue that will
determine the functionality of federalism and the chance of empowerment of local people.
Local government finance in Nepal will be confronted in the near future with five major challenges
1. Given the population growth and the urbanisation rate as well as the urbanisation growth rate,
the number of urban areas will increase in the next years.
2. Given the WTO membership of Nepal, the LDF is not compatible with the concept of free
trade and must be out-phased within some years (WTO 2003).
3. Given the growth of revenues collected, the Government of Nepal has been increasing funds
for municipalities in the last and probably in the upcoming fiscal years (see figure 3, p. 5). It
is expected that local areas will benefit to comply with the demand for participation and inclusion
(MLD and GTZ/udle 2006)
4. The discretionary style of grant allocation by MLD and MPPW harm efforts on the local level
for better exploiting taxes and may have a negative impact on long-term financial planning if
grants are easily accessible. Grants allocated through at arm's length organisations such as
TDF are decreasing (see figure 11, p. 19), partially because of less easy accessible grants
(conditions and restrictions apply in contrast to funds allocated by ministries).
5. The growing political stability in Nepal will unleash funds from international donors that
have been retained during the conflict period.
Funding
Fiscal System
revenues, revenue allocation
and revenue sharing in a federal
state
Globalisation
Urbanisation
Short description
Municipalities may levy house and land tax on each house and land
within their jurisdiction on the basis of the size, type, design, construction and structure of the house and area covered by the house, as approved by the Municipal Council.
For the purpose of land revenue, land is divided into four categories, on
the basis of the productivity of land (Abal, Doyam, Seem and Chahar).
For the purpose of the Bhumi Kar, urban land is divided into six categories on the basis of residential and commercial importance of land.
Integrated property
tax
For the purpose of this tax, a municipality shall have to stratify its area
as per necessity, and a separate statement of integrated property of the
residents or such stratification of each ward shall be prepared in the
specified format. The value fixed by the municipality and the rate of the
tax fixed by the Municipal Council to be levied thereon shall have to be
published and the municipality shall have to send a bill. The tax must be
paid as per the bill by the concerned taxpayer to the municipality within
the same fiscal year. No land revenue and house and land tax is levied
on the property subject to the integrated property tax.
Entertainment tax
Advertisement tax
Rent tax
Professional tax
Municipalities are authorized to levy an annual vehicle tax on the specified vehicles within their areas of jurisdiction and a per entry tax on all
kinds of vehicles entering into their area.
Municipalities can also levy per entry tax on the use of the road constructed by them or transferred to them from other organisations. Muni-
Revenue Title
Short description
cipalities can levy registration tax on carts, riksha and tanga at rates
ranging from Rs 15 to Rs 50.
Commercial video
tax
Municipalities may levy tax at the rate of Rs 200 to Rs 500 per annum
on per video, projector, cable etc used by any person or organization for
commercial purpose.
Service
Charges
parking fee, electricity, water, public telephone fee, solid waste, sanitation, public lavatories,
park, bath room, swimming pool, gymnasium, guest house, tourist site, hostel, haat bazaar,
sewerage fee slaughter house, crematorium, valuation of real estate (fixed assets), use of
washing space, street light, road, drainage maintenance
Fees
Commercial
activities
Bahal (rent)
Municipalities act as commercial entrepreneurs in developing sites rented out to private natural or legal persons
Grant
Loan
Loans are available from the TDF especially for urban infrastructure
after Local Self-Governance Act 1989:113-115, Khadka 2003
In recent years, municipalities are also trying to generate income through large infrastructure projects like bus parks and commercial centres. Commercial activities may play a growing role if funding of municipalities is not adequate to their needs and might harm private sector investments or
even activities.
3.000.000.000
2.500.000.000
Local Taxes
2.000.000.000
1.500.000.000
Miscellenous Income
Other Revenues
Balance f orw arded
1.000.000.000
500.000.000
0
FY91/92
FY93/93
FY93/94
FY94/95
FY94/96
FY96/97
FY97/98
FY98/99
FY99/00
FY00/01
FY01/02
FY02/03
FY03/04
FY04/05
FY05/06
1.400.000.000
1.200.000.000
Other Taxes
1.000.000.000
Tax Arrears
Unclaimed Land Tax
Sales Tax: Cattle/Fish
Local Market Tax
800.000.000
Contract Tax
House Rent Tax
Roof Top Tax
Professional Tax
600.000.000
400.000.000
200.000.000
0
FY91/92
FY92/93
FY93/94
FY94/95
FY94/96
FY96/97
FY97/98
FY98/99
FY99/00
FY00/01
FY01/02
Note: Until FY 99/00, some municipalities did not differ between revenues from octroi and vehicle tax.
FY02/03
FY03/04
FY04/05
FY 05/06
Figure 5: Municipal tax revenue composition in Nepal (excluding LDF and former octroi)
100%
90%
80%
70%
Other Taxes
60%
Tax Arrears
Unclaimed Land Tax
Sales Tax: Cattle/Fish
50%
40%
30%
20%
10%
0%
FY91/92
FY92/93
FY93/94
FY94/95
FY94/96
FY96/97
FY97/98
FY98/99
FY99/00
FY00/01
FY01/02
FY02/03
FY03/04
FY04/05
FY 05/06
Please note that the figure excluded octroi as well as joint revenue titles, i.e. octroi and vehicle tax that
some municipalities combined until the fiscal year 2000/2001.
centage of tax revenue to the overall tax collection. Quite apparent is the sharp change of revenue
composition with beginning of the fiscal year 2000/2001. Key message since 2000/2001 is that
property related taxes, i.e. IPT and HALT, are becoming the major original tax source for municipalities - more than 50% on average since the fiscal year 2000/2001,
the share of the professional tax remains rather stable - about 17% on average since the fiscal
year 2000/2001,
the share of the vehicle tax is declining, about 12% on average since the fiscal year 2000/2001,
while all other tax revenue titles contribute with less than 10% to the overall tax revenue of municipalities
10
90%
80%
42,4%
54,6%
70%
52,6%
54,2%
49,3%
49,2%
46,4%
47,9%
56,9%
60,3%
45,1%
56,7%
60,9%
64,7%
65,1%
60%
Local Taxes
Fees and Fines
Property Rental
Loans
Grants
50%
Other Income
Miscellenous Income
40%
Other Revenues
Balance f orw arded
5,2%
30%
7,6%
4,3%
11,2%
22,2%
22,5%
14,1%
20%
5,8%
6,8%
25,7%
7,5%
14,5%
10,2%
8,8%
15,4%
14,0%
10,6%
16,0%
28,7%
24,3%
10%
12,5%
14,5%
10,2%
10,6%
6,2%
9,3%
8,6%
7,3%
FY00/01
FY 01/02
FY 02/03
11,6%
6,6%
0%
FY91/92
FY93/93
FY93/94
FY94/95
FY94/96
FY96/97
FY97/98
FY98/99
FY99/00
FY 03/04
FY 04/05
FY 05/06
11
12
250,00%
200,00%
150,00%
100,00%
50,00%
0,00%
-50,00%
FY93/94
FY94/95
FY95/96
FY96/97
FY97/98
FY98/99
FY99/00
FY00/01
FY01/02
FY02/03
FY03/04
FY04/05
FY 05/06
13
175,00%
150,00%
125,00%
100,00%
75,00%
Vehicle Tax
Professional Tax
50,00%
25,00%
0,00%
-50,00%
-75,00%
-100,00%
-125,00%
-150,00%
FY93/93 FY93/94 FY94/95
14
15
16
Figure 9: Total revenue and total population in the fiscal year 2005/2006PRITHABINARAYAN
190000
LEKHANATH
BIRENDRANAGAR
170000
150000
BUTWAL
Total Population
130000
DHULIKHEL
BHIMESHOR
110000
BYAS
MALANGAWA
90000
KALAIYA
DHANKUTA
BHARATPUR
ILAM
70000
TULSHIPUR
PANAUTI
DASARATHCHAND
HETAUDA
TRIYUGA
50000
TRIBHUVANNAGAR
SIDDHARTHANAGAR
MADHYAPUR THIMI
LAHAN
KAMALAMAI
WALING
KAPILVASTU
BIRGUNJ
RAMGRAM
KHADBARI
DAMAK
LALITPUR
RAJBIRAJ
PUTALIBAZAR
GAUR
POKHARA GULERIYA
ITAHARI
TANSEN
RATNANAGAR
TIKAPUR
JANAKPUR
BANEPA
BIDUR
KIRTIPUR
DHARAN
BIRATNAGAR
NEPALGUNJ
MECHINAGAR
BHAKTAPUR
BAGLUNG
DHANGADHI
INARUWA
30000
SIRAHA
MAHENDRANAGAR
NARAYAN
JALESWOR
BHADRAPUR
DIPAYAL-SILGADHI
10000
0
20000000
40000000
60000000
80000000
Total Revenue
100000000
120000000
140000000
160000000
17
Figure 10: Per capita revenue and total population (excluding Kathmandu) in the fiscal year 2005/2006
1000000000
BIRGUNJ
BIRATNAGAR
LALITPUR
BHAKTAPUR
regression (logarithm)
100000000
population (logarithm)
POKHARA
BHARATPUR
DHARAN
BUTWAL
JANAKPUR
HETAUDA
SIDDHARTHANAGAR
MECHINAGAR
ITAHARI
MADHYAPUR THIMI
BANEPA
LEKHANATH
NEPALGUNJ
MAHENDRANAGAR
TRIYUGA
RATNANAGAR BIRENDRANAGAR
KAMALAMAI BYAS
PANAUTI
BAGLUNG
LAHAN
RAMGRAM
PRITHABINARAYAN
DIPAYAL-SILGADHI
INARUWA KHADBARI
ILAM
PUTALIBAZAR
BHIMESHOR
MALANGAWA
WALING
DASARATHCHAND
SIRAHA
JALESWOR
AMARGADHI
TANSEN
BIDUR
GAUR
DHANKUTA
BHADRAPUR
TRIBHUVANNAGAR
TIKAPURTULSHIPUR
GULERIYA
10000000
KALAIYA
DAMAK
DHANGADHI
RAJBIRAJ
KAPILVASTU
NARAYAN
2000
DHULIKHEL
18
19
700.000.000
600.000.000
500.000.000
TDF Grant
400.000.000
Other Grants
Development Grant
Administrative Grant
300.000.000
200.000.000
100.000.000
0
FY91/92 FY93/93 FY93/94 FY94/95 FY94/96 FY96/97 FY97/98 FY98/99 FY99/00 FY00/01 FY01/02 FY02/03 FY03/04 FY04/05 FY 05/06
20
However, the practice of grant allocation has been criticised for a rather long time. Main point of critique is the arbitrary allocation, and the large number of competing funding opportunities. While
some grants have been administered by autonomous organisations like the Town Development
Fund under specific programs, such as matching grants or grants for municipalities that have fewer
funding opportunities from loans, some are given by MLD and MPPW. The policies, under which
grants are being allocated range from very low conditions (this is especially true for the Municipal
Reserve Fund, MRF administered by the Ministry of Local Development, MLD), to sector-specific
grants.
The competition of grants results in
reduced likeliness that municipalities apply for loans, because alternative cheaper funds are
available,
reduced likeliness that municipalities apply for grants if grants are conditional in terms of reporting, feasibility studies or evaluation requirements,
reduced likeliness to implement Government sectoral policies, if cheaper funds are available
Figure 12 shows all type of grants excluding the large LDF, that accounted for almost one billion
NRs. in the last fiscal year. The grants listed here
grants allocated to all municipalities (de facto unconditional)
administrative grant (MLD)
development grant (MLD)
grants allocated only to selected municipalities (de facto conditional)
TDF grants (matching grants distributed by TDF from MLD)
RUPP grants (matching grants distributed by MLD)
HRD grants (matching grants distributed by MLD)
resource mobilisation grant
21
This chapter summarises key policy recommendations gtz/udle should follow to achieve objectives
in the area of local government finance. Local government finance comprises
own sources of revenue versus allocated funds from regional entities or central government,
taxes versus non-tax revenues
Sub sections are on:
local government finance,
intergovernmental fiscal transfers, including grant formula, and
accounting policies and management.
22
Businesses
Local revenues need to be adThe framework for local taxation The local tax system needs to be
equate to meet the cost of the serneeds to be simple, transparent fair and equitable in both design
vices and infrastructure they are inand easy to understand.
and administration.
tended to finance.
Local revenues need to be buoyant The local tax system needs to be
(the tax base should grow autofair and equitable in both design
matically when prices rise, popula- and administration.
tion grows or the economy ex Everyone should pay
pands) to meet expanding desomething.
mands for service delivery. Reven The tax burden should be proue collections need to be stable
portionate to ability to pay (verand predictable to facilitate plantical equity).
ning and budgeting.
Local Authorities
need to be minimized.
Businesses
23
A crucial suggestion which derives from the literature is that local taxation may play an important
role in curbing expectations of soft budget constraints. The threat by the central government not to
intervene ex post to solve local governments problems may simply be not credible ex ante, if the
local government has no sufficient resources of its own to take care of unpredictable events. And
as local expenditure tend to be fixed in the short run, these extra resources can only come from
local taxation. Interestingly, there is some robust empirical evidence (Rodden 2002, 2006), based
on both interregional and inter-countries comparison, which suggests that local governments which
are mostly financed by own resources tend to be less prone to soft budget constraints problems.
gtz/udle has already started to think about new income sources for local government, among them:
property transfer tax
a tax on property sale by natural and legal persons based on the price of the property
integrated property tax
further broadening of tax base and reducing complexity of tax. It is a widely assumption that
property taxes are "best" for local government, but tax management and tax assessment usually
burdens institutional capacity of local government very much.
supplementary charge on central government taxes
This approach is being widely used in highly decentralised unitary states such as Scandinavian
countries on PIT and corporate income taxes. gtz/udle should evaluate the impacts of supplementary charges on PIT and how to extend the PIT tax base.
24
References
25
References
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