The sharing ratio could be 80 percent for the central government, 10 percent for regional and 10 percent for local levels, he suggested adding the local government could be allowed to levy property/house taxes.

Wener said the local government is currently extremely dependent on the central government as 85 percent of their revenue comes from the transfer of the central grant.

“From the international perspective, it would make sense in the future if basic needs and primary and secondary education was not the responsibility of the central government,” he said, presenting a paper on his observation of Nepal’s revenue sharing mechanism at an interaction organised by Federation of Nepalese Chambers of Commerce and Industry (FNCCI).

He stressed on the need for necessary constitutional provisions that would help avoid or lower fiscal conflicts, mainly in the taxation on natural resources. “If the issues of the taxation system, government expenditure and public debt are not addressed properly in the new constitution, it will lead to the persistent economic imbalance in the country,” said Wener.

The German professor stressed on the need for clearly assigning the role to central or local governments. “Which authority will be responsible for collecting various types of revenues and spend resources should be mentioned in the new constitution,” he said.

Som Lal Subedi, secretary at the Ministry of Federal Affairs and Local Development, said the government has already delegated the authority of collecting land revenue and property tax to local administration. “However, the absence of capable manpower at the local level has made the task ineffective,” said Subedi, citing the need for restricting local bodies. He said the quality service delivery should be ensured in the federal system by resolving the low capacity, high cost variance and the level of social disparity at the local level.

Rup Bahadur Khadka, chairman of the High-Level Taxation System Review and Recommendation Commission, suggested forming a Finance Commission to institutionalise coordination among the to-be-formed states. “It could help maintain equitable distribution of financial resources, including the distribution of grants, and tax sharing,” he said.