Kathmandu – The National Natural Resources and Fiscal Commission (NNRFC), a constitutional body in Nepal, has reported that 93 percent of its recommendations and suggestions to all three levels of government remain unaddressed. Only seven percent of the advice has been implemented, according to the commission’s eighth annual report.
The NNRFC’s eighth annual report, approved on Bhadra 24 (BS) and submitted to President Ramchandra Paudel on Bhadra 31 (BS), criticises the federal, provincial, and local governments for showing extreme indifference and neglect towards legal provisions and the NNRFC’s suggestions. Dr. Juddha Bahadur Gurung, the commission’s former chairperson, stated that the centralised mindset of the federal government’s administrative machinery has undermined the fundamental principles of fiscal federalism.
Dr. Gurung highlighted that the federal government has curtailed the rights of local and provincial levels in the distribution of natural resource royalties. He noted that recommendations regarding the distribution of radio frequency royalties to local municipalities, based on the Telecommunications Act and international precedents, have been pending for four years.
Successive finance ministers have reportedly dismissed these recommendations. Former Finance Minister Prakash Sharan Mahat questioned the need to follow Western advice, while former Finance Minister Barshaman Pun cited resource constraints. Former Finance Minister Bishnu Poudel expressed reluctance due to perceived mismanagement in municipalities. Current Finance Minister Dr. Swarnim Wagle also reportedly avoided discussing the matter during a briefing.
Revenue distribution and legal reforms
The NNRFC’s report also points out that crucial suggestions concerning revenue distribution and mobilisation have not been implemented. It observes a consistent indifference from all three tiers of government in adhering to the commission’s advice and existing legal frameworks.
The report analyses the implementation status in three key areas of revenue distribution and mobilisation. These include a lack of reconciliation for internal production and value-added tax, insufficient prior notice for revenue estimates and target revisions, and a trend among some local governments to declare themselves tax-free municipalities, which contradicts general revenue principles.
The Inter-Governmental Fiscal Arrangement Act, 2074 (BS), mandates monthly distribution and year-end reconciliation of value-added tax (VAT) and excise duty collected from internal production. However, the report found that revenue collected between Ashar 16 and Ashar end (BS) is often not distributed or reconciled within the same fiscal year.
The NNRFC also recommended that federal units inform stakeholders when revising revenue targets through budget reviews, a suggestion that has not been implemented. Furthermore, the commission explicitly advised local governments to utilise their constitutional revenue authority and not declare tax-free zones. However, Maula Devi Municipality in Rautahat declared itself a tax-free municipality for the fiscal year 2082/83 (BS), completely disregarding the NNRFC’s advice.
Recommendations for improved fiscal management
The commission has put forward six significant recommendations to streamline revenue distribution, legal reforms, and fund management. It has suggested amending the Inter-Governmental Fiscal Arrangement Act, 2074 (BS), to explicitly include the sharing of royalties from casinos and lotteries between the federal and provincial governments, as these are listed under the concurrent powers of the federation and provinces in Schedule 5 of the Constitution.
Additionally, the NNRFC has recommended that provincial and local governments deposit collected revenue into their respective divisible funds and distribute it within specified timelines. It also advised these governments to avoid double taxation, make revenue predictable, and identify new revenue potential within their jurisdictions while adhering to constitutional and legal boundaries.
The commission also proposed amending the Inter-Governmental Fiscal Arrangement Act to allow for the reconciliation of refundable tax amounts directly from the federal divisible fund, given that provincial and local divisible fund amounts are deposited into their respective consolidated funds.
The NNRFC has also suggested creating integrated legislation to determine investment and profit shares among all three levels of government for natural resource utilisation and to resolve disputes. However, such legislation has not yet been enacted. The development of an integrated system to record the country’s total natural resource capital is also pending. Furthermore, the recommendation to abolish the District Coordination Committee has not been implemented.
