Municipalities and rural municipalities across the country depend heavily on the federal government for budget to implement their programmes, a report released by the Financial Comptroller General Office said.

However, economic experts and officials say local governments have made significant gains in generating resources, compared to the pre-federalism days when local bodies didn’t enjoy as many fiscal rights as they do now.

“Before the federal structure setup was implemented, municipalities used to raise around 10-12 percent of their budget on their own,” said Hem Chandra Lamichhane, an expert on local governance. “The figure for the erstwhile Village Development Committees stood at around 1-2 percent.”

According to the report, around 22 percent of the funds spent by local governments in the fiscal year 2018-19 came from their own resources. While 75 percent of the money came from the central government, provincial governments contributed just three percent.

Bishnu Dutta Gautam, under-secretary at the Ministry of Federal Affairs and General Administration, which facilitates coordination between the federal and local governments has an assessment similar to that of Lamichhane “A figure of 22 percent signals towards great progress compared to the past,” said Gautam.

The centre provides fiscal equalisation, conditional, complementary and special grants to the local governments. The conditional grant is provided to implement federal programmes.

Of the Rs 306.41 billion the 753 municipalities and rural municipalities spent during the last fiscal year, around Rs 93.96 billion came from revenue they raised on their own, said the financial comptroller.

Lamichhane, who worked as an expert for the Local Bodies’ Fiscal Commission, said that because the constitution gives local governments more fiscal rights than before, the revenue of the municipalities registered increments. According to the constitution, municipalities can now levy taxes on wealth, house rent, land and building registration and motor vehicles. They can also impose taxes on tourism, mining, advertisement, businesses, land and entertainment.

In the past, the erstwhile Village Development Committees didn’t have authority to levy wealth tax. The central and local governments used to share house rent tax—with the central government claiming the larger share of the pie. The erstwhile District Development Committees used to collect tax imposed on mining and trading of aggregates.

Ashok Kumar Byanju, president of the Municipal Association of Nepal, said the share of the local resources compared to the grants received from the federal government would be much higher if the the conditional grants were separated from the federal grant.