The Cabinet on Thursday appointed Baikuntha Aryal as acting head of the National Natural Resource and Fiscal Commission (NNRFC), a constitutional body which will devise a formula for the distribution of grants, revenues and royalties to subnational governments.

Aryal was formerly a joint secretary at the Finance Ministry and headed its International Economic Cooperation Coordination Division.

He will lead the commission until the Constitutional Council appoints a chairman. The Constitutional Council is headed by the prime minister and consists of the House speaker, opposition leaders and other members.

The Cabinet also promoted Aryal to acting secretary before appointing him to the new post. He was appointed temporary chief of the commission so that the distribution of grants, revenues and royalties is not held up in the next fiscal year.

The Intergovernmental Fiscal Management Act, ratified by Parliament in October, has envisaged four types of grants—fiscal equalization, conditional, matching and special—for states and local bodies. The federal government will provide these grants annually.

Among these grants, matching and special grants will be provided by the central government, while fiscal equalization and conditional grants will be provided based on the recommendation of the National Natural Resource and Fiscal Commission.

The commission will devise a formula based on parameters such as geographic area, population, cost of service delivery, incidence of poverty and ability to generate financial resources to recommend grants for subnational governments.

It will also devise a formula and methodology for the distribution of value added tax (VAT) and excise duty among the three tiers of government. The commission will create a formula and methodology for the distribution of the proceeds generated from the use of natural resources, namely mountaineering, electricity, forests and mines and minerals, among the three tiers of government. As per the Intergovernmental Fiscal Management Act, the central government is required to give 15 percent of the VAT and excise duty collected from domestic products to the local bodies, and another 15 percent to the states from the next fiscal year.

The central government also needs to distribute 25 percent of the royalties generated from the use of natural resources like mountaineering, electricity, forests and mines and minerals to the local bodies and another 25 percent to the states from the next fiscal year.