Kathmandu, local level spar over wealth taxWhile the tax row between the three tiers of government has yet to be resolved, a new dispute has emerged over wealth tax between the local level and the Centre.
While the tax row between the three tiers of government has yet to be resolved, a new dispute has emerged over wealth tax between the local level and the Centre.
Local governments, especially municipalities, have charged the federal government with breaching the constitutional provision while the Finance Ministry introduced the new Finance Act.
According to Schedule 8 of the constitution, imposing wealth tax comes under the jurisdiction of the local government, which imposed wealth tax on the house and land owned by individuals as per the Local Government Operation Act-2017.
However, the Finance Act introduced by the federal government said wealth tax can be imposed only on the house and the area covered by it. It asked the local governments to impose land tax on the land not covered by the house.
This new change, according to the Municipal Association of Nepal (MuAN), goes against the constitutional provision. They said the federal government cannot enter into the area barred by the constitution.
“The federal government made an entry into the issue where it has no jurisdiction,” said Dhulikhel Municipality Mayor Ashok Kumar Byanju, the newly elected president of MuAN. “This is an example of how the federal government is seeking to squeeze the authority of local governments.”
Stating that this will reduce the scope of revenue generation of the local government, the MuAN, a common platform of municipalities formed in 1994, recently urged the federal government to restore the old provision of the Local Government Operation Act.
“The provision of the Finance Act will reduce the revenue of local governments significantly and weaken them financially,” stated the Kathmandu Declaration of the sixth National Conference of MuAN issued on Thursday.
The local governments generally fix the wealth tax based on the market price whereas the land tax has usually remained very low. For local governments, wealth tax is the second largest source of revenue after building permits, according to Byanju.
Amid strong protest from local governments, the central government is preparing to amend the provision of the Finance Act. Revenue Secretary Sishir Dhungana said they are working to amend this provision through Some Nepal Acts Amendment procedure.
This is not the first time that the federal government has been forced to review its decisions. The central and local governments have been embroiled in a protracted row over house rent tax for almost a year.
Despite house rent tax coming under the local government’s jurisdiction, the federal government didn’t want to relinquish this tax interpreting it as income tax citing the Income Tax Act. According to the constitution, income tax comes under the federal government’s jurisdiction.
This forced many landowners to pay double taxes. Amid strong protests from the local governments, the federal government decided to relinquish the authority of charging house rent tax on April 23 this year by publishing a notice in the Nepal Gazette.
Experts on federalism blamed the recurring tax row between the federal and local governments on the Centre’s old mentality to keep everything with it and the ad-hoc transition into federalism.
Balananda Poudel, who headed the Local Level Restructuring Commission, said the federal government did not adequate consultation with the local governments while drafting the law. “Relations between the three tiers of government should be defined by the law, which has yet to happen,” he said.