KATHMANDU: The federal government is collecting house rent tax, which falls within the jurisdiction of local governments according to constitutional and legal provisions. As state and local governments accuse the federal government of trying to maintain a monopoly on rights and resources in the federal system, it has emerged that the federal government is collecting house rent tax, which, according to the constitution, falls under the local governments.

Some state governments have filed cases in the Supreme Court against the federal government, arguing that their constitutional rights are being infringed.

Clauses (4) of Article 57, Clause (2) of Article 214, Clause (2) of Article 221, and Clause (1) of Article 226 in Schedule-8 of the Constitution of Nepal list the rights of local governments, including city police, cooperatives, FM operations, and local taxes. Local governments are authorized to collect taxes such as property tax, house rent tax, real estate registration fee, vehicle tax, service tax, tourism fee, advertising tax, business tax, land revenue tax, fines, entertainment tax, and property tax. However, not all local governments have been able to collect the institutional house rent tax.

Bhimprasad Dhungana, president of the Municipal Association of Nepal, says they have not been able to exercise their rights due to federal government’s intervention. "Even now, our municipality has not been able to collect the housing rental tax," he said. "The federal government has not allowed us to collect it."

The Local Government Operation Act, 2074, specifies that property tax, house rent tax, real estate registration fee, vehicle tax, service fee, tourism fee, advertisement tax, business tax, land revenue tax, and other local taxes are subject to federal and state laws. Schedule 3 of the Inter-Governmental Finance Management Act, 2074, places house rent tax within the sole jurisdiction of local governments.

Despite this, the Ministry of Finance has tasked the Inland Revenue Department with collecting more than Rs 3 billion in house rent tax for the current fiscal year. By mid-June, the department had collected Rs 2.19 billion in house rent tax. This raises concerns about the federal government collecting revenue against the spirit of federalism. A tax officer in the Baneshwar Tax Office confirmed that they continue to collect the institutional house rent tax. "If someone comes to pay the tax, we will accept it," he said.

When asked why the federal government is collecting a tax that falls under local jurisdiction, a Ministry of Finance official stated that the revenue would be distributed to the lower levels through revenue sharing.

"Even if the federal government raises it, it will go to the lower levels through revenue distribution," the official said.

Taxes that are the fall under the full authority of local governments are not shared with the central and state governments. According to the Inter-Governmental Finance Management Act, 2074, value-added tax (VAT) and royalties from natural resources are distributed among the three levels of government.

Federalist Khimlal Devkota maintains that the federal government is still encroaching on the rights of some local levels. He believes it is necessary for the federal government to clarify to local governments which taxes they can collect. "If we explain these things, the capacity of the local level will increase," he said, "And they can develop further."

Kathmandu Metropolitan City, the largest city in the country, has begun collecting corporate tax independently. According to Naveen Manandhar, spokesperson for the metropolis, the tax collection falls under their jurisdiction. "There is no need to keep asking anyone because the constitution and the laws give clear authority," he said. "We are collecting taxes."

He added that because the federal government previously collected most taxes, including house rent tax, there might still be some confusion among taxpayers. "We are also working to raise awareness," he said.