Equalization grants: annual Appropriation Acts let the last two instalments be recalculated by revenue performance, while the Constitution and the fiscal Acts tie the amount to the Commission's recommendation

Laws and sections involved

• नेपालको संविधान · Constitution of Nepal Art. 60(3)–(4); Art. 251(1)(b)
  Our translation: the amount of fiscal transfers that provinces and local levels receive shall be as recommended by the Commission (60(3)); the Government of Nepal shall distribute equalization grants on the basis of expenditure needs and revenue capacity (60(4)); the Commission recommends equalization grants (251(1)(b)).
  Law Commission Unicode text; Gazette 2072/06/03; amended 2072/11/16 and 2077/03/04 (neither changed Art. 60). Official text ↗
• अन्तर–सरकारी वित्त व्यवस्थापन ऐन, २०७४ s.8(1)
  Our translation: the Government of Nepal shall distribute equalization grants to provinces and local levels on the recommendation of the Commission, on the basis of their expenditure needs and revenue capacity.
  Law Commission consolidated text; authenticated 2074/6/27; amended 2075/3/32 and 2075/11/19. Later amendments not confirmed. Official text ↗
• विनियोजन ऐन, २०८१ · Allocation Act, 2024 s.6(3)–(4)
  Our paraphrase: equalization grants are paid in four quarterly instalments; the third instalment is fixed on the ratio of revenue collected to target up to end-Poush and the fourth is re-determined on revenue target and collection up to end-Chaitra.
  Appropriation Act 2081 (Act No. 4 of 2081), authenticated 2081/03/30, for FY 2081/82; commences 2081 Shrawan 1. Official text ↗
• विनियोजन ऐन, २०८२ · Allocation Act, 2025 s.6(3)–(4)
  Our paraphrase: one quarter of the equalization grant is transferred in each of four instalments (Bhadra, Kartik, Magh and Baisakh); the first and second instalments follow the initial estimate, and the third and fourth are 're-determined on the basis of the ratio of revenue collection to target' up to end-Poush and end-Chaitra respectively.
  Appropriation Act 2082 (Act No. 3 of 2082), authenticated 2082/03/30, for FY 2082/83; text read from the Ministry of Law copy linked in the catalogue. Annual Act; spent at the end of the fiscal year. Official text ↗
• विनियोजन ऐन, २०८३ · Allocation Act, 2026 s.6(3)–(4)
  Our paraphrase: the same four-instalment rule, with the third and fourth instalments re-determined by the ratio of revenue collection to target, is repeated for FY 2083/84.
  Appropriation Act 2083 (Act No. 8 of 2083), Gazette 2083/03/30; commences 2083 Shrawan 1 (s.1(2)). Official text ↗

The apparent issue

A permanent Act and the Constitution say the equalization grant follows the Commission's recommendation; a later annual Appropriation Act lets the federal government recalculate part of that grant according to its own revenue performance. If the two are read as conflicting, it is unclear which prevails — the later, specific annual Act or the general framework Act read with Art. 60 — and whether the Constitution allows the recommended amount to be reduced in this way.

Evidence

• The Commission states that although equalization grants should be transferred in the amount it recommends, the Government of Nepal reduced them through an Appropriation Act provision re-determining transfers by the ratio of revenue collection to target; it records cuts of 8.51 per cent for provinces and 8.56 per cent for local levels and marks its recommendation as not implemented. National Natural Resources and Fiscal Commission s.5.1.4, table item 3, printed p.129 (PDF p.157)
• The re-determination clause was read in s.6(4) of the Appropriation Acts 2081, 2082 and 2083; s.8(1) of the Intergovernmental Fiscal Arrangement Act and Art. 60 were read in the official texts. Nepal Law Commission · Ministry of Law Appropriation Act 2081 PDF p.7; 2082 PDF pp.9–10; 2083 PDF p.5; IGFA PDF p.5; Constitution PDF p.34

Possible readings

1. Reading 1 (the Commission's view): once the Commission recommends an equalization grant amount, Art. 60(3)–(4) and s.8 require that amount to be transferred, so an annual Appropriation Act should not reduce it by reference to federal revenue.
2. Reading 2: the Commission recommends; Parliament appropriates. The Appropriation Act is a later Act of Parliament dealing specifically with that year's spending, and adjusting instalments to available revenue is part of ordinary fiscal management, so the clause is valid.
3. Reading 3: the clause may be valid as a cash-management rule, but a reduction that is never made up later could amount to departing from the recommended amount; whether there is a conflict may depend on whether the shortfall is restored.

Why it matters in practice

If Reading 1 is right, provinces and local levels may have received less than the constitutionally required amount, which falls hardest on those that depend most on equalization grants. If Reading 2 is right, the clause is lawful but makes subnational budgets less predictable, since late-year instalments depend on federal revenue performance outside their control.

Possible improvements and trade-offs

• Remove the revenue-ratio re-determination for equalization grants from future Appropriation Acts, keeping it (if at all) for other transfers.
  Protects the recommended amount and predictability; reduces federal flexibility when revenue falls short, which may push the shortfall onto other spending or borrowing.
• Write a clear rule into the Intergovernmental Fiscal Arrangement Act on when, how and by how much equalization grants may be adjusted in-year, with consultation of the Commission and a duty to restore shortfalls.
  Balances fiscal prudence with predictability; still needs a view on whether any reduction is compatible with Art. 60(3).
• Keep the clause but have the Commission recommend amounts that already reflect a realistic revenue forecast.
  Reduces the gap between recommendation and transfer; depends on forecasting accuracy and does not resolve the legal question.

Questions for legal review

1. Can an annual Appropriation Act validly reduce an equalization grant below the amount the Commission recommended, given Art. 60(3)–(4) and s.8 of the Intergovernmental Fiscal Arrangement Act?
2. Is the Commission's recommendation on equalization grants binding as to amount, or advisory?
3. Which fiscal year does the reported 8.51 / 8.56 per cent cut relate to, and was any shortfall restored later?

Research status

Researched

2026-10-12

Confidence

Medium confidence — The clause was read in two Appropriation Acts and the Commission reports the resulting cut directly. Confidence is medium because whether the clause is inconsistent with Art. 60 is contested and depends on how binding the Commission's recommendation is.

Review

Not yet reviewed by a qualified lawyer.

Still unresolved

• The NNRFC table does not state the fiscal year of the 8.51 / 8.56 per cent cut in the row we read; we assume it refers to the year reviewed in the 8th report (not confirmed).
• The clause appears in the Appropriation Acts 2081, 2082 and 2083; earlier Appropriation Acts were not checked.
• The Ministry of Finance's reasoning for the clause was not found.

Sources

1. राष्ट्रिय प्राकृतिक स्रोत तथा वित्त आयोगको आठौं वार्षिक प्रतिवेदन, २०८३ (Eighth Annual Report, 2083) Checked 2026-10-11
2. विनियोजन ऐन, २०८१ (Appropriation Act, 2081) — official Nepali text Checked 2026-10-11
3. विनियोजन ऐन, २०८२ (Appropriation Act, 2082) — official Nepali text Checked 2026-10-11
4. विनियोजन ऐन, २०८३ (Appropriation Act, 2083) — official Nepali text Checked 2026-10-11
5. अन्तर-सरकारी वित्त व्यवस्थापन ऐन, २०७४ (Intergovernmental Fiscal Arrangement Act, 2074) — consolidated Nepali text Checked 2026-10-11
6. नेपालको संविधान (Constitution of Nepal) — official Nepali Unicode text Checked 2026-10-11