Sudurpaschim Budget Expands as Internal Revenue Remains Below

The size of the Sudurpaschim Province budget has been increasing annually, but its capacity to sustain the budget through its own revenue sources has not kept pace. While the provincial government has introduced budgets exceeding NPR 36 billion to date, internal revenue remains below the NPR 2 billion mark. This trend, in which the budget expands while the internal revenue base remains narrow, raises questions about the province's fiscal autonomy.

Data from the last six fiscal years reflects this situation. During this period, in fiscal year 2077/78, a budget of NPR 34.645 billion was allocated, while internal revenue stood at NPR 1.2945 billion. Similarly, in 2078/79, the budget was NPR 31.8537 billion against internal revenue of NPR 923.064 million. In 2079/80, the budget size rose to NPR 36.8339 billion, with internal revenue reaching approximately NPR 1.36 billion. Records from the Ministry of Economic Affairs indicate that internal revenue was NPR 1.251673 billion against a budget of NPR 33.476 billion in 2080/81, NPR 1.561473 billion in 2081/82, and NPR 1.65 billion in 2082/83.

The Constitution of Nepal grants provincial governments the authority to collect revenue and incur expenditures on matters falling within their jurisdiction. Schedule 6 of the Constitution outlines 21 areas of exclusive jurisdiction. Similarly, Schedule 2 of the Inter-Governmental Fiscal Arrangement Act, 2074, provides for the collection of revenue from tax and non-tax sources by the province. Provincial governments are authorized by law to levy and collect real estate registration fees, vehicle taxes, entertainment taxes, advertisement taxes, and taxes on agricultural income.

Likewise, service charges and fees, tourism fees, and fines and penalties constitute sources of non-tax revenue. Provisions exist to levy other taxes and non-tax charges in accordance with provincial law for matters falling within the province's jurisdiction. Among these, the tax on agricultural income is an exclusive provincial right. However, since authority over sources such as real estate registration fees, vehicle taxes, entertainment taxes, and advertisement taxes is shared between the provincial and local levels, revenue is collected either through statutory revenue-sharing mechanisms or through exclusive tax administration.

Furthermore, the province receives funds from sources such as revenue sharing and royalties, yet the expansion of these revenue streams has not kept pace with the province's growing budgetary requirements.

Provincial Finances Dependent on Grants
Grants received from the federal government constitute a significant portion of the Sudurpaschim Province's budget structure. Since the province's inception, equalization, conditional, complementary, and special grants have served as crucial pillars of its budget. Data from fiscal years 2077/78 to 2082/83 indicates that the province receives annual grants ranging from approximately NPR 14 billion to NPR 17 billion from the federal government. The highest amount of federal grant, Rs 17.5583 billion, was received in fiscal year 2079/80, while the lowest amount, Rs 13.8711 billion, was received in fiscal year 2081/82.

In fiscal year 2077/78, the province's total budget stood at Rs 34.6450 billion, with federal grants amounting to Rs 14.2371 billion. Provincial resources for that year totaled Rs 20.4078 billion, accounting for approximately 58.91 percent of the net appropriation. Similarly, in fiscal year 2078/79, federal grants were Rs 14.6048 billion and provincial resources were Rs 16.8708 billion. In fiscal year 2079/80, federal grants rose to Rs 17.5583 billion, while provincial resources stood at Rs 19.2756 billion.

In fiscal year 2080/81, federal grants dropped to Rs 14.4219 billion, while provincial resources stood at Rs 14.8647 billion. In fiscal year 2081/82, although federal grants were Rs 13.8711 billion, provincial resources reached Rs 17.7956 billion. For fiscal year 2082/83, federal grants stand at Rs 14.2072 billion and provincial resources at Rs 19.2688 billion.

The amount categorized as the province's "own resources" does not consist solely of internal revenue; it also includes revenue sharing, royalties, and other sources. Therefore, although the share of provincial resources appears significant in the budget, the actual contribution from tax and non-tax revenues generated within the province itself is quite small.

Alongside receiving federal grants, the provincial government has been transferring grants under various headings to local levels within its jurisdiction. Funds transferred to local levels amounted to Rs 2.8291 billion in FY 2077/78, Rs 2.3216 billion in FY 2078/79, Rs 1.4785 billion in FY 2079/80, and Rs 2.3476 billion in FY 2080/81. The allocated amount stands at Rs 3.6447 billion for FY 2081/82 and Rs 3.4277 billion for FY 2082/83.

Potential to Increase Revenue
It is not that there is no potential to expand the revenue base in Sudurpaschim. The expansion of religious and tourist destinations, hotels, homestays, and adventure tourism can boost activities in the service sector. Experts suggest that instead of exporting agricultural produce merely as raw materials, processing, packaging, and branding them within the province could expand the industrial and business base. Similarly, economic experts argue that the province's own revenue could be increased by systematically expanding sectors such as forestry and medicinal herbs, water resources and energy, industry, and services.

Economist Shivahari Mudbhari states that not only Sudurpaschim but almost all provinces in the country have had to rely on federal grants because they have failed to fully utilize their own potential. He emphasizes the need to systematically link the province's religious heritage, watersheds, lakes and ponds, and natural resources with economic activities.

"Currently, overall, more than 90 percent of the province's reliance for resources remains heavily on the federal government. To improve this situation, provincial political leadership needs to show great courage and devise prudent strategies, while the central government must facilitate this process," said Mudbhari.

He notes that relying on the center risks further limiting the province's fiscal autonomy; therefore, a clear policy to boost revenue is essential.

"We need to formulate concrete plans to expand our resource base in accordance with the Constitution and the law. Revenue generation can be linked to the industrial and service sectors through initiatives such as natural and religious tourism, as well as agriculture and agro-processing. Processing raw materials and adding value within the province, rather than exporting them, would boost both economic activity and revenue. Similarly, projects targeting religious tourism, such as the development of Godavari Dham, riverfront areas, and recreational parks including a zoo, could be initiated immediately," he suggested.

Pushpa Raj Kunwar, President of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) in Sudurpaschim, also emphasizes that expanding production, investment, and business operations is crucial to broadening the revenue base. He argues that there is a need for clarity regarding jurisdiction and collection mechanisms, rather than having all three tiers of government levy taxes on the same economic activity.

"Currently, there is a burden caused by various types of taxes," Kunwar said. "Therefore, we need to facilitate tax administration reforms, create an investment-friendly environment, streamline economic activities, and encourage investment in productive sectors. It is essential to clearly define rights and revenue-sharing arrangements regarding areas such as riverbed materials, advertising, tourism, entertainment, business operations, and natural resources."

Forests and medicinal herbs represent another significant area of potential for the province. Dandiraj Subedi, Central General Secretary of the Federation of Community Forestry Users Nepal (FECOFUN), states that Sudurpaschim could reap immense benefits by effectively producing, processing, and marketing both timber and non-timber forest products.

"Our greatest strengths lie in our natural resources and religious heritage. Currently, forest cover stands at approximately 54 percent; there are opportunities for sustainable utilization, the implementation of sustainable forest management policies, and the attraction of private investment into productive sectors," he says. "However, the vision regarding this remains unclear. There is a tendency to simply raise tax rates in the name of increasing revenue, whereas expanding the economic base that generates tax revenue is far more effective in the long run. We need to focus on this approach."

Rajendra Kumar Hamal, Secretary at the Ministry of Economic Affairs, notes that although the Constitution provides a clear framework for the allocation of powers and resources among the federal, provincial, and local levels, complexities regarding implementation persist. He emphasizes the need for all stakeholders to act responsibly in areas crucial for revenue reform: enacting integrated provincial revenue laws, clarifying taxation rights across the three tiers of government, expanding the tax base, and curbing revenue leakage.

"While increasing internal revenue generation is certainly important, the allocation of resources from the federal government is not yet equitable. Therefore, there have been repeated calls to make the grant formula more equitable based on indicators such as population, poverty, and service delivery needs, and to ensure that grant transfers are transparent and timely," said Secretary Hamal.

Furthermore, making fiscal federalism a success requires the provincial and local levels to possess the capacity to manage both resources and responsibilities. Stakeholders have been voicing concerns that relying solely on federal grants, without developing the capacity to generate revenue from their own sources, undermines both fiscal autonomy and accountability.