Potential For Revenue Growth in Gandaki Province

Simply, government revenue depicts the funds collected by a government from various sources over a specific period, usually a year. This revenue is primarily derived from tax and non-tax sources, and it is an important component of the government’s fiscal policy, as opposed to government expenditure. With the incorporation of Federalism in Nepal, every province has its own fiscal autonomy. In the context of the Gandaki Province, it currently exhibits a significant dependence on the central government for its financial needs, with internal revenue sources contributing a mere 13% to the total revenue as per the Revenue Potential and Management Study of Gandaki Province 2079 (Gandaki Province Policy and Planning Commission). When compared to the other seven provinces in Nepal, Gandaki ranks fifth in terms of internal revenue generation, highlighting a notable area for improvement. Enhancing internal revenue is crucial for making financial federalism more effective and meaningful, and several strategies can be adopted to achieve this goal.

Vehicle tax, house-land registration fees, Dahtar Bahattar (tax amount on stones, gravel, sand), entertainment tax, advertisement tax, and agricultural income tax are the main sources of internal tax revenue for Gandaki Province. At the moment, house-land registration fees and motor vehicle taxes account for the biggest portions of internal tax collection. In comparison, the revenue from entertainment and advertisement taxes is low, while the amount from agricultural income tax is negligible. The collection of service fees, tourism fees, and fines are examples of non-tax revenue sources. Despite their low current contribution, these non-tax sources have a lot of growth potential.

Looking over Gandaki Province’s revenue potential, there exists enhancement opportunities. About the collection of tax on riverine materials i.e. Dahtar Bahattar (stones, gravel, sand, etc.); the Local Government Operation Act 2017 has provisioned its authority under concurrent power of local and province levels. While Federal Government’s Finance Act 2018 has enshrined this authority exclusively on the local level. If this conflict is sorted regarding collection and distribution of revenue from Dahtar Bahattar then revenue from these resources could be increased and properly managed. 

Likewise, House-Land Registration Fees present another opportunity, with potential revenue increases of up to 50%, if there are improved regulatory practices and assessments to reduce bribery and fraud. As per the Study Report on Revenue Potential and Management of Gandaki Province 2079, on-site inspections have revealed that government assessments of house-land prices in urban areas are less than 25 percent of market value, and these valuations are much below market value. As a result, since house-land registration fees are predicated on these inflated government rates, they generate little revenue. So, it is important to periodically review and update the valuation rates to take into account the state of the market. 

Further, revenue can be greatly increased by modernizing the tax collection system and enforcing stricter enforcement to address leaks in vehicle tax collection. In the fiscal year 2078/79, the revenue estimation for motor-vehicle tax collection was 1.5 billion but the actual collection was 889.3 million which shows a disparity. So, the Revenue Potential and Management Study of Gandaki Province 2079 (Gandaki Province Policy and Planning Commission) suggests that a portion of the Gandaki Province’s motor-vehicle owners are not filing their taxes where a thorough list of unregistered and unrenewed vehicles should be created to address this, and owners should be informed that the tax is due.