Inclusive Cities Resilient Communities

Third United Nations Conference on Housing and Sustainable Urban Development (Habitat III):
National Report of NEPAL
Case Study 3
Integrated Property Tax- A Tool to Increase Municipal OSR in
Nepal
Background
With the newly added municipalities, about
39% of the total populations of Nepal now
live in 217 designated municipalities in
three different ecological zones. The
challenges posed by expected increase in
urban population has to be met by these
municipalities to counteracting social and
/or ecological pressure within urban areas,
ensuring participatory planning and
decision making for good urban
governance, poverty reduction and
employment generation, improving urban
infrastructure and services, developing
housing and conserving heritage, based on
the principles of social inclusion, especially
of marginalized and/or disadvantaged
groups. It is expected that municipalities
will be able to take such challenges by
increasing its municipal finance capacity in
various urban sectors.
However, leaving aside the major
metropolises, almost all municipalities have
limited municipal financing capacities
because of weak internal sources of income
which is mainly comprised of different
taxes and non-taxes revenues. The total
municipal revenue composition is
composed of big share from direct central
government grants, supplemented by Local
Development Fees (LDF), loans from
public and private sources, savings from
previous years’ budgets and locally raised
revenue from taxes, fines, user’s charges
from local enterprises. LDF which was
collected at customs and distributed to the
municipalities based on specified criteria
ensured that the share of it would not be
less than the collection of octroi that was
abolished in 1999. LDF has been the major
contributor of the municipal revenue
source as evident from the income data for
the year 2010/11 in which it contributed
about 17.8% in the total income sources of
the municipalities followed by central grant
(46.7%) and local revenue sources (20.2%).
Government still continues the
distribution of equivalent LDF through
Local Development Fee Fund albeit it
stopped LDF collection at customs since
fiscal year 2007/08. It is seen that each year
the municipal dependency on the central
grants are increasing as evident in the
growth of central grant from 1.5 billion to
4.1 billion between 2012/13 and 2014/15.
In such, local authorities would have to
find alternative ways to increase their
financial revenues. Of several initiatives,
Integrated Property Tax has been
envisaged and successfully implemented as
an effective tool to mobilize the financial
resources of various municipalities.
The Approach and the Actors involved
The Local Self Governance (LSG) Act and
Regulation (1999) and subsequent
Regulations empower municipalities to
determine the tax types, rates and tax bases
within the municipal areas. Among major
sources and 18 components of tax revenue,
the prevailing mode of property taxing is
based on either House and Land Tax
(HALT) or Integrated Property Tax (IPT).
HALT is levied upon the net value of
house and the plot on which the house is
92