Madhesh government halts grants to 25 local units over revenue dues

The Madhesh provincial government in Nepal has taken a firm stance against 25 local units by suspending conditional, special, and complementary grants due to their failure to transfer the province's rightful share of collected revenue. This decisive action could potentially disrupt ongoing development projects and delay salaries for essential public employees, including teachers and health workers.

“

We repeatedly wrote to the local units and asked them to deposit the revenue, but they continued to ignore the requests.

According to the provincial finance ministry, these local units collectively owe Rs622.9 million to the provincial treasury. Officials have indicated that repeated requests and warnings issued over the past two years have been consistently ignored, compelling the government to act decisively at the close of the fiscal year. Finance Minister of Madhesh Province, Yubaraj Bhattarai, stated that the local units' defiance raises serious questions about the functioning of the federal system, emphasizing that while local governments are autonomous, they are not above the law.

Minister Bhattarai explained that withholding grants became a necessary measure to enforce financial discipline and ensure adherence to constitutional and legal provisions governing revenue sharing. Under Nepal's constitution and the Local Government Operation Act, 2017, local units are mandated to deposit 40 percent of revenue from sources such as sand, gravel, and stone extraction royalties, along with advertisement and entertainment taxes, into the provincial consolidated fund. However, many local governments have allegedly retained and spent these funds themselves.

“

Such behaviour raises questions about the functioning of the federal system itself. Local governments are autonomous, but they are neither sovereign nor above the law.

The urgency of the situation was amplified after the Office of the Auditor General flagged these outstanding amounts as unsettled accounts in its eighth annual report, increasing the legal and moral pressure on the provincial government to recover the dues. While fiscal equalization grants are constitutionally protected, the provincial government has frozen the other three grant categories funded by its own budget. Minister Bhattarai reiterated that the grants will remain suspended until the outstanding revenue is settled, noting that Nijgadh Municipality in Bara district owes the largest amount, Rs239.27 million, from stone, gravel, and sand royalties and advertisement taxes since the 2017-18 fiscal year.

“

This was not a sudden decision. The ministry has been writing letters, issuing reminders and raising the matter in meetings of the provincial coordination council for two years. Some local governments continued to defy the directives. Once the Auditor General identified the issue as an irregularity, we had no option but to stop the grants.