English - Support to Participatory Constitution Building in Nepal ...

oyalties from natural resources (i.e.
hydropower, mines, forests etc.) and
tourism. The proportion of sharing will
be decided later by law. The present
state of sharing by local government
is 50% in hydropower, 30% in tourism,
5-90% in registration fee (land and
property), 50% in mines and 10% in
forests.
In addition, each of the three
levels of government receives
aid and grants, i.e. foreign aid for
the central government, grants
from the center to the provinces
(provincial governments are entitled
to receive foreign aid directly but
this requires pre-approval of the
central government), and grants
from both center and provinces to
local governments and autonomous
areas. The present state of grants to
local government is 5-8% in annual
budgetary allocations, and/or 3% of
total national income.
IV. 3. Proposal for centralized revenue
collection and distribution system
The central government earns more
than provincial governments. The figure
for national revenue and its sector-wise
distribution is: VAT: 30%, institutional
tax: 18%, commodity tax from foreign
trade: 17%, and Antasulka: 9%. As all
these sources of income fall under the
jurisdiction of the central government,
more than three-fourths of the total
national revenue goes to the central
government treasury. In addition, foreign
aid, which contributes around 25% of
total budget and more than 50% of the
development budget, also falls under the
earnings of the central government.
So a centralized revenue collection
system is likely to be a characteristic
of Nepali federalism. This is also
true in Australia, where the central
government earns 69 % of national
revenue. Canada provides a different
model – a decentralized revenue
collection system – in which about
55% of the national revenue is earned
by provincial and local governments.
Germany and Belgium give another
different model – a system of
centralized revenue collection but
decentralized distribution.
Centralization of distribution is likely
to be a feature of Nepali federalism
because at present the contribution
of local government to total national
income is only 5%.
IV. 4. Principles of equalization
• The proposed 14 provinces
are asymmetric in their levels of
development. 85% of national
revenue is collected from 7 out of the
total 75 districts, and the remaining
15% is collected from the other 68
districts. 45 districts (60% of the total
of 75 districts) are unable to generate
sufficient revenue to finance their
total expenditures.
To ensure economic equalization of
the provinces over time, the model
of federalism in Nepal should be
cooperative and interdependent at
both levels, with (1) a vertical relation
between the center and provinces,
and (2) horizontal relations among
the provinces. Taking into account the
imbalanced economic development
among the proposed provinces,
there should be provisions to extract
more from developed provinces
and distribute more to the least
developed provinces, and to provide
unequal distribution of grants in favor
of the least developed provinces.
The question of economic equalization
is taken up by different mechanisms –
by an independent expert commission
in India, by an intergovernmental
council in Pakistan, by the federal
legislature in the USA and by the federal
government in Canada.
8 Federalism Dialogues Series 5