GTZ Report on Proposal for Nepal Grant Formula - LGCDP

Proposal for a municipal grant allocation formulaiTable of Content1 Preconditions for and assumptions on a local government system in a federal Nepal.............................................................................................................................................11.1 Principle of subsidiarity and congruence...............................................................................................................21.2 Principle of equivalence................................................................................................................................................31.3 Principle of connectivity...............................................................................................................................................32 Proposal for a new local government taxation system in a federal Nepal.............52.1 Replacement of the Local Development Fee.........................................................................................................52.2 A local taxation system acknowledging the design principles of congruence, equivalence and connectivity...............................................................................................................................................................................62.2.1 An optimal set of local government taxes.....................................................................................................72.2.2 A reasonable sharing of taxes between levels of government..............................................................92.2.3 A cost-­‐recovery approach in the calculation of user charges............................................................103 Proposal for a future grant allocation scheme for municipalities in a federal Nepal...........................................................................................................................................113.1 Total gross fund deoinition.........................................................................................................................................113.2 Preference for unconditional grants instead of conditional grants...........................................................123.3 The proposed grants....................................................................................................................................................133.3.1 Unconditional grants..........................................................................................................................................133.3.2 Conditional grants...............................................................................................................................................134 Formulae de[inition for unconditional grants..............................................................154.1 Basic grant formula deoinition.................................................................................................................................154.1.1 Population..............................................................................................................................................................154.1.2 Own Source Revenue.........................................................................................................................................164.1.3 Socio-­‐economic condition................................................................................................................................174.2 Minimum Conditions and Performance Measurement formula deoinition............................................174.2.1 Minimum condition fuloilment.......................................................................................................................184.2.2 Honouring local performance........................................................................................................................184.2.3 Grant assignments during a oiscal year.......................................................................................................185 Formula de[inition for conditional grants (capital investment grants)...............196 References..................................................................................................................................20