Kathmandu. Last month, the Commission for the Investigation of Abuse of Authority filed a case against 14 people, including the mayor of Godavari Municipality in Lalitpur, Gajendra Maharjan, on charges of embezzling Rs 1.04 billion in revenue.
They were accused of embezzling revenue by imposing taxes on quarrying and sand and gravel extraction within the municipality. However, three months after the case was filed, the special court ruled that Maharjan was innocent.
The Commission had accused Godavari Municipality of corruption by setting a lower revenue rate in its financial act than the tax rate set by the provincial government, in contradiction with the provisions of the Bagmati Province Financial Act.
The Authority had filed a charge sheet against the local government chief Maharjan and deputy chief Muna Adhikari, including the people’s representatives, who were made defendants, demanding punishment on the basis that the defendants had committed an offense under Section 7 (b) of the Prevention of Corruption Act, 2059.
The special court explained that there was no dispute that Godavari Municipality had passed a financial act every fiscal year and set the tax rate on the export of goods obtained from natural resources. Nepal, which has adopted a unitary system of governance, has adopted the system of central, provincial and local governments after the promulgation of a constitution in accordance with the federal structure in 2072 BS.
All three levels are exercising their rights, including tax assessment, in their designated areas of work as prescribed by the constitution. Since then, a series of disputes over the rights to natural resources have continued. The Godavari Municipality tax dispute is just one example.
The dispute in Godavari shows that the dispute that began between the three levels of government over the issue of taxes on the collection and use of natural resources is intensifying. Article 221 of the Constitution of Nepal 2072 has granted administrative powers to the local level. “As per Article 226, a municipality can impose fees such as export tax, but it is not allowed to sell the property, so it does not appear that the municipality is guilty of an offence under Section 7 (b) of the Prevention of Corruption Act, 2059,” the special court said in its verdict on the dispute. The judgment further states, “It has been argued that the allegations made against the defendants have not been substantiated on the basis of the above facts, reasons and evidence. But this has not been done. Whereas Section 64 (f) of the Local Government Operation Act 2074 BS provides that the rate and procedure for natural resource tax on gravel, slate, sand, limestone, limestone, mica and other natural resources shall be determined by the province and collected by the rural municipality or municipality.
According to the court’s interpretation, the Local Government Operation Act is incompatible with the constitution, so no action was taken against the mayor, deputy mayor and employees of Godavari Municipality in the case related to misuse of natural resources. After the adoption of the federal system of governance, this dispute between Bagmati Province and Godavari Municipality on the issue of tax seems to be a dispute over natural resource mobilization. After all the local levels have imposed taxes, such disputes have been flaring up from time to time between the three levels of government, arguing over who is less than whom.
Just like in the business, business and administrative sectors, there is also controversy over taxation of natural resources. The Federation of Community Forest Users (FECOFON) is protesting against the imposition of a triple tax on community forests after the implementation of federalism in the country. FECOFON says that the community forest users have been victimized by the lack of a clear state policy on taxation, saying that they have to pay taxes to the federal, provincial and local levels. The Federation is holding protest meetings across the country to remove the triple tax. According to the current system of community forest taxation, provincial governments have adopted a policy of taxing forest produce collected from community forest user committees.
When selling forest products from community forests outside, the tax has been fixed at 15 percent in Madhes Province, 10 percent in Bagmati Province, 30 percent in Gandaki Province, 25 percent in Lumbini Province, 15 percent in Karnali Province, and 25 percent in Sudurpaschim Province. In Koshi Province, the tax rate has not been fixed yet, informed Vishal Ghimire, Secretary of the Ministry of Tourism, Forest and Environment under Koshi Province. “So far, community forests do not have to pay tax to the Koshi Province government. Now that the Finance Act is coming, some provisions may be made in it,” he said.
The Federation had been objecting to the fact that the financial burden on community forest consumers has increased due to the imposition of taxes by all three levels of government. The Supreme Court issued an interim order in 2080 Falgun and directed the provincial government not to collect tax on community forest products. After the Gandaki Provincial Government imposed a 30 percent tax on forest produce, the Community Forest Users Federation approached the Supreme Court demanding the dissolution of the Gandaki Province.
The Supreme Court had given an interim order to the Gandaki Provincial Government not to immediately implement the 30 percent tax on forest produce. According to Thakur Bhandari, President of FECOFON, the struggle against the provision of collecting higher taxes is still ongoing, saying that the provinces have been affected by the tax they have set. President Bhandari said that FECOFON will continue to protest on the issue of the triple tax.
FECOFON has been emphasizing that only the minimum tax prescribed by the Local Government Operation Act should be imposed on community forests. “The local government has collected 10 percent and the provincial government 20 to 35 percent of the tax from community forests. And the central government collects up to 25 percent of the accumulated fund,” he said. “In particular, community forests do not have to pay tax. Because the community forest group is a non-profit organization and it is working in the interest of the community. But we are ready to pay the minimum tax (10 percent).” Bagmati Province MP and community forest activist Bharati Pathak suggests that the recent tax dispute can be resolved by collecting tax through a single-door system through discussions and coordination between all three governments, the federal, provincial and local governments. “The process of tax collection and the distribution of natural resources are not fair.
A serious discussion is needed on this issue,” he said. “A solution should be found through serious discussions on natural resource management and tax collection in federalism and the issues of conflicting laws,” he said. Another area that is a natural resource like mining and forests is drinking water. There is conflict among the three levels of government over the mobilization of drinking water resources. The conflict between the locals has surfaced after they demanded royalties from the central government in the area where the drinking water project is being operated.
For example, the local government has warned that the service will be disrupted if the local level is not given a share of the income from the Melamchi drinking water project. Since the water from the Melamchi drinking water project is distributed in Kathmandu at a fee, the people’s representatives of Sindhupalchowk have formed a struggle committee demanding that the affected area receive royalties. Nima Gyalzen Hyolmo, the chairperson of Helambu Rural Municipality in Sindhupalchowk, which is the area affected by the Melamchi drinking water project, has demanded that 25 percent of the proceeds from the sale of Melamchi drinking water be provided to the local level.
The demand raised by Helambu Rural Municipality has not been heard so far. “Kathmandu Upatyaka Khanepani Limited (KUKAL) does not distribute Melamchi water to consumers for free when it reaches Kathmandu. We have been demanding 25 percent royalty from the income it earns by selling water,” he said. “If our demand is not met, there will be obstacles in the process of sending Melamchi drinking water to the valley. Melamchi will be closed after the upcoming rains.”
Hyolmo has clarified that 25 percent of the profit has been demanded for resource management for local level development, water source protection, disaster management and other programs. The controversy that arose regarding the Kaligandaki-Tinau Diversion Project in 2076 BS also garnered attention. Local residents of Syangja, Palpa and Tanahun living along the banks of the Kaligandaki River and the local level had objected.
The then Chief Minister of Gandaki Province, Prithvi Subba Gurung, had protested, saying that the diversion project was being carried out without the consent of the province. The protest came after the federal government prepared a Detailed Project Report (DPR) with the objective of providing irrigation facilities to Rupandehi, Kapilvastu and Nawalparasi in Province-5 by diverting water from the Kaligandaki River through a tunnel.
After the government announced the multi-purpose project, a writ petition was filed in the Supreme Court. The work could not proceed after the bench of the then Chief Justice Cholendra Shumsher Jabra issued an interim order on Asad 29, 2078 not to implement the project. However, the Supreme Court dismissed the writ petition on Kartik 11, 2081. The Supreme Court dismissed the writ petitions, saying that it would be hasty to assess the environmental damage at the initial stage.
The court has directed environmental assessment, sustainable use of river resources and stopping waste discharge into the Kaligandaki, to be environmentally conscious, to release a minimum of 20 percent water into the Kaligandaki, to make sustainable use of resources and to stop waste discharge into the river. The dispute between the province and the local level over the forest area in Lumbini Province three years ago can be taken as another example of a struggle for rights. The dispute arose when the Devdaha Municipality of Rupandehi was proceeding with the contract process for the extraction of riverine materials in the rivers and streams within its area, when the Division Forest Office, Rupandehi, under the provincial government, stopped the municipality from entering into a contract for a stream falling in a forest area.
Mayor Dhubra Prasad Kharel says that there is no dispute of any kind at present. The dispute over the operation of the Sagarnath Forest Development Project, which falls in Madhes Province, has reached the court. The dispute over whether the Sagarnath Forest Project, which is an important forest-related project of the Government of Nepal, will be operated under the province or the central government, has not yet been resolved. The Madhes Province Government had filed a case against the federal government in the Supreme Court on 23 Shrawan 2076, alleging that it was not given the authority according to the constitution.
The Ministry of Industry, Tourism, Forest and Environment of the Madhes Province Government has accused the Madhes government of violating the rights of the constitution by the federal government. The ministry has filed a writ petition alleging that the forest development project, which is one of the main sources of the province’s economic resources and covers an area of about 18,000 hectares, is being merged with the Timber Corporation of Nepal (TCTN), a subsidiary of the association. The Constitutional Bench of the Supreme Court had issued an interim order in Bhadra 2076 stating that the federal government’s decision was not legal and had not been implemented.
Secretary of the Ministry of Forest and Environment under the Madhes Provincial Government, Uddhav Bahadur Ghimire, said that the dispute has affected the management of the Sagarnath Forest Project. Not only has the project work been hampered, but the future of the project is uncertain as the employees working there have not been paid for eight months. The disputes over the above-mentioned natural resources indicate that the road ahead will be even more tense. In Nepal, disputes over the exploitation of natural resources and the distribution of royalties arising from them are becoming increasingly complicated from time to time.
There has been a tug-of-war between the local level, provincial government and the federal government from time to time over the issue of royalties arising from the use of hydropower projects, mines and mineral resources, gravel, sand and forests, which are listed as natural resources. Juddha Bahadur Gurung, acting chairman of the National Natural Resources and Finance Commission, says that due to legal ambiguity and lack of interpretation of the law in his favor, lack of understanding, lack of transparency and unequal access to economic benefits, disputes have occasionally arisen between the three levels of government in the mobilization of natural resources. “Among natural resources, the most controversial issue is the mobilization of water resources. One local level has a water source.
A dispute is also being created by saying that it will not provide it to another local level. But since the Constitution of Nepal has enshrined the right to clean drinking water as a fundamental right, no local level can say that it will not provide drinking water to another local level,” he said. “Thus, the commission has been playing a role in resolving disputes between various governments in the federal structure over the right to use natural resources and revenue sharing by providing fact-based suggestions.” Gurung said that disputes over natural resources can be resolved through prioritizing and coordinating studies. However, he said that the lack of human resources and necessary financial investment has made it a challenge to conduct studies and research as needed to resolve disputes. “Clear laws are also needed at the local level to resolve such disputes. Coordination and public awareness are necessary to resolve the main problem seen in understanding,” said Garung. “Now, there has been a change in the equalization grant distribution to resolve the dispute. The province will also consider the performance of grant distribution work to the local level. Earlier, we considered only population as the basis. Now, we have considered geography as the basis.
” Dispute over royalty The unequal distribution of royalties received from natural resources has occasionally given rise to disputes. The study report on the review of the existing structure of royalty distribution received from natural resources by the National Natural Resources and Finance Commission has shown that there is inequality in the distribution of royalties from natural resources. According to the report, since royalties are collected based on the nature and scope of natural resource mobilization and distributed on a project-by-project basis, the total share of Madhes and Karnali provinces received by the provinces under the existing system based on the effect of royalty distribution is at most two percent per year, while Sudurpaschim has not been able to reach five percent.
According to the data collected by the National Natural Resources and Finance Commission, Bagmati province, which has the highest share, has received an average of 35 percent royalty per year in five years. Koshi, Gandaki and Lumbini provinces have received an average of 17, 19 and 22 percent respectively. The commission suggests that Nepal needs to develop an original royalty distribution system according to the circumstances of its country, which has low royalty income, by learning from the practice of royalty distribution adopted by countries rich in royalty income. Even before the promulgation of the constitution, the practice of collecting and distributing royalties, especially from hydropower, forests, and mines and minerals, had begun in Nepal. But it was not very systematic in terms of the constitution and law.
Currently, the constitution, law, and mechanism have been provided for the distribution of royalties from natural resources (mountaineering, electricity, forests, mines and minerals, water, and others) in Nepal, and for the past five years, royalties from mountaineering, electricity, forests, mines, and minerals have been distributed among the three levels of government. Suggestions not to discriminate in financial equalization grants Laxmi Devi Pandey, President of the National Federation of Rural Municipalities, says that discrimination should not be made, especially when the Finance Commission recommends financial equalization grants to the provinces and local levels.
“This much grant is recommended after making a preliminary plan for the current fiscal year. It cannot be used. We are creating a conditional budget. The budget for the constitution is being cut. That is the budget for local development,” he said.
“Revenue has been distributed on the basis of revenue. Local levels should not be treated equally between those who have income and those who do not. Due to the lack of revenue, youth are fleeing the villages due to being deprived of government facilities.” He said that local levels should focus on how to increase revenue. “Forest management should be improved. River products are not being managed properly. There is theft and smuggling. It is said that natural resources should not be used. They should be used properly.” Acting Chairman of the National Natural Resources and Finance Commission Juddha Bahadur Gurung informed that a recommendation has been made to the government with suggestions to resolve the dispute over equalization grants.
Constitutional scholar Dr. Bhimarjun Acharya says that there is a need to move forward by amending the constitution itself to resolve the recent disputes over royalty distribution and the problems seen in this regard. “Controversy has arisen in natural resource management and royalty distribution due to lack of proper preparation and research,” he said. “The constitution made legal provisions regarding distribution. However, the implementation of the constitution was challenged due to the difficult provisions. Lack of capacity has further compounded the problem. Now the constitution itself can be improved by amending it.”
Acharya says that today’s need is to increase coordination between local, provincial and central governments and enhance their capacity. Constitutional Provisions Article 51(1) of the Constitution of Nepal stipulates that the state policy on natural resources should embrace the principle of intergenerational equity and ensure the sustainable use of natural resources and equitable distribution of benefits, with priority given to local communities.
Schedules 5, 6, 7, 8 and 9 of the Constitution provide for tier-specific rights and duties related to the relevant natural resources, while Schedule 9 places natural resources and royalties derived from their use within the jurisdiction of all three tiers. The division and elaboration of the list of single and common rights of the federal, provincial and local levels has further clarified these issues. Article 59(4) of the Constitution provides for the equitable distribution of royalties to project-affected areas and local communities through the federal, provincial and local levels.
Article 60 (2) provides for equitable distribution of revenue collected as royalty among the three tiers of government, and Article 60 (3) provides that such financial transfer to the provinces and local levels shall be in accordance with the recommendations of the National Natural Resources and Finance Commission. Article 251 of the Constitution has entrusted the National Natural Resources and Finance Commission with the responsibility of determining the detailed basis and framework for revenue sharing between the federation, provinces and local levels, reviewing it and making recommendations to the Government of Nepal.
The said article has assigned the responsibility of determining the basis for determining the share of investment returns of the three tiers of government in natural resource mobilization, making suggestions for the resolution of disputes that may arise between the three tiers of government in the allocation of natural resources, and conducting research and recommendations on environmental impact assessments related to the allocation of natural resources. Although some sectoral laws have been enacted in Nepal regarding royalty collection and distribution, the Intergovernmental Financial Management Act 2074 BS and the National Natural Resources and Finance Commission Act 2074 BS play a major role in the matter of royalty distribution.
Apart from these acts, the Local Government Operation Act 2074 BS, the Federal, Provincial and Local Levels (Coordination and Interrelation) Act 2077 BS, and the provincial government operation laws are somewhat relevant in the matter of royalty distribution. Ending the controversy Acting Chairman of the National Natural Resources and Finance Commission Juddha Bahadur Gurung admits that although the local, provincial, and federal governments can exercise their respective rights over natural resources according to the Constitution of Nepal, the lack of clear legal provisions and understanding on the issue of royalty collection and distribution is increasing conflict among the three levels. The federal government has made arrangements to collect royalties from large projects and national resources. The local and provincial governments, on the other hand, are raising their voices that they should be paid for using the natural resources, saying that there will be an environmental impact. In the current structure, the federal government gets 50 percent, the provincial and local governments 25-25 percent, and the people’s representatives of the affected areas are demanding at least 50 percent royalty from the local level.
Dr. Kedar Baral, Secretary of the Ministry of Forest and Environment of Bagmati Province, also agrees that the government closest to the people should receive more taxes. Stating that it is necessary to self-review the current royalty provision, he said, “The provincial government has been placed on the list of sole rights to manage the national forest. But the National Natural Resources and Finance Commission has a provision that 50 percent will go to the federal government, 25 percent to the provincial government, and 25 percent to the local level in the revenue distribution method. This is not fair at all.”
He argues that if the list of sole rights to manage forests belongs to the provinces, then the provinces should get the largest share of revenue. However, the National Natural Resources and Finance Commission has recommended to the government to revise the existing system of distributing royalties from natural resources among the Government of Nepal (Federation), the concerned provinces, and the local level.
Environmental law expert Prakash Mani Sharma says that conflicts have increased between the three levels of government in federalism over natural resources as a means of generating income, and this has also increased environmental crimes. “Natural heritage is only seen as a source of income. It is not seen as a natural value or environmental protection. River stones, gravel and hills are only seen as an economic resource, and the budget itself talks about selling crushed stones to reduce foreign exchange losses,” he said. “We had to face man-made natural disasters like landslides while extracting stones and gravel in the Godavari River in Lalitpur. Therefore, we should stop such environmental crimes and focus on eco-friendly development.”
प्रतिक्रिया दिनुहोस्