Laws · Analysis

Fiscal transfers: the Constitution ties their amount to the Fiscal Commission's recommendation, but the Acts give it a role only for equalization grants

Laws Analysis

Research candidate — not legal advice. This is a starting point for lawmakers and legal reviewers, drawn from official reports. It has not been reviewed by a qualified lawyer and does not establish that any law is invalid or that a loophole exists.

Possible conflict between lawsMedium confidenceEnacted ActReform recommendation

Article 60(3) of the Constitution says the amount of fiscal transfers that provinces and local levels receive shall be as recommended by the National Natural Resources and Fiscal Commission. The Intergovernmental Fiscal Arrangement Act 2074 gives the Commission a recommending role only for equalization grants; for conditional grants it sets bases, and complementary and special grants follow procedures the federal government sets. The Commission and the Auditor General both say the Acts should be amended to match Article 60(3). Article 60(6), however, leaves conditional, complementary and special grants to federal law, so whether there is a real conflict is a question for legal review.

Laws and sections involved

  • नेपालको संविधान · Constitution of Nepal Art. 60(3), 60(4), 60(6); Art. 251(1)(b)–(c)
    Our translation: Art. 60(3) — the amount of fiscal transfers that provinces and local levels receive shall be as recommended by the National Natural Resources and Fiscal Commission. Art. 60(4) — the Government of Nepal shall distribute fiscal equalization grants on the basis of expenditure needs and revenue capacity. Art. 60(6) — arrangements for distributing conditional, complementary and special grants from the federal Consolidated Fund shall be as provided by federal law. Art. 251(1)(b)–(c) — the Commission recommends equalization grants and prepares the bases for conditional grants.
    Law Commission Unicode text; Gazette 2072/06/03; amended by the First Amendment (2072/11/16) and Second Amendment (2077/03/04). Neither amendment changed Art. 60 or 251 as far as the consolidated text shows. Official text
  • अन्तर–सरकारी वित्त व्यवस्थापन ऐन, २०७४ ss.8, 9, 10(5), 11(3)
    Our paraphrase: s.8(1) — the Government of Nepal distributes equalization grants 'on the recommendation of the Commission'. s.9(1) — conditional grants are given 'according to the bases set by the Commission' under Art. 251(1)(c). s.10(5) and s.11(3) — the procedure and other arrangements for complementary and special grants 'shall be as determined by the Government of Nepal'.
    Law Commission consolidated text; authenticated 2074/6/27 (Act No. 21 of 2074); amended by the Financial Act 2075 (2075/3/32) and two Acts of 2075/11/19. ss.8–9 on PDF p.5–6; ss.10–11 on PDF pp.6–7. Later amendments not confirmed. Official text
  • राष्ट्रिय प्राकृतिक स्रोत तथा वित्त आयोग ऐन, २०७४ · National Natural Resources and Fiscal Commission Act, 2017 s.3(1)
    Our paraphrase: in addition to its constitutional functions, the Commission recommends to provinces on provincial equalization grants and bases for conditional grants to local levels (s.3(1)(a)–(b)) and 'gives suggestions' to the Government of Nepal on grants it gives to provinces and local levels (s.3(1)(d)). The Act does not give the Commission a role in fixing the amount of conditional, complementary or special grants.
    Law Commission consolidated text; authenticated 2074/6/27 (Act No. 17 of 2074); amended once, by the Some Nepal Acts Amendment Act 2075 (2075/11/19). s.3 on PDF p.2. Official text

The apparent issue

Article 60(3) refers to the 'amount of fiscal transfers' without limiting it to equalization grants, while Article 60(6) leaves the distribution of conditional, complementary and special grants to federal law. The federal Acts that implement these provisions give the Commission a recommending role only on equalization grants. It is unclear whether the Acts fall short of Article 60(3), or whether Article 60(6) allows them to treat the other grants differently.

Evidence

  • The Commission lists, as a recommendation not implemented by the Government of Nepal, that the NNRFC Act 2074 and the Intergovernmental Fiscal Arrangement Act 2074 be amended so that the constitutional provision in Article 60(3) is implemented. In its recommendations section it repeats this and says it has been making the same suggestion in previous years. National Natural Resources and Fiscal Commission s.5.1.4, table item 1, printed p.128 (PDF p.156); s.5.1.5, items 3–4, printed p.130 (PDF p.158)
  • Until the Acts are amended, the Commission asks the federal and provincial governments to send it, by the end of Magh each year, the planned unit-wise and sector-wise amounts of conditional, complementary and special grants for the next year; it records this as not implemented. National Natural Resources and Fiscal Commission s.5.1.4, table item 2, printed p.129 (PDF p.157); s.5.1.5, item 4, printed p.130 (PDF p.158)
  • The Auditor General notes that in FY 2081/82 federal transfers totalled Rs 349.30 arba, of which equalization grants were Rs 135.79 arba and conditional grants Rs 196.93 arba, and that because the law gives the Commission no role in setting the amount of grants other than equalization grants, existing laws and practice should be amended in line with the Constitution to clarify the Commission's role. Office of the Auditor General National Natural Resources and Fiscal Commission section, para 2, printed p.72 (PDF p.104)
  • Article 60 of the Constitution, ss.8–11 of the Intergovernmental Fiscal Arrangement Act and s.3 of the NNRFC Act were read in the Law Commission's official texts. Nepal Law Commission Constitution PDF pp.34, 130; IGFA PDF pp.5–7; NNRFC Act PDF p.2

Possible readings

  1. Reading 1 (the Commission's and the Auditor General's view): Article 60(3) covers all fiscal transfers, so the federal Acts should give the Commission's recommendation a role in the amount of every type of grant; until they do, the Acts implement the Constitution only partly.
  2. Reading 2: Article 60(6) is a specific rule for conditional, complementary and special grants and leaves them to federal law, and Article 251(1) gives the Commission only a 'bases' role for conditional grants; read together, Article 60(3) applies mainly to equalization grants and the Acts are consistent with the Constitution.
  3. Reading 3: Article 60(3) may refer to the overall size of transfers (a total envelope) rather than each grant line, in which case the Commission could recommend a total while federal law governs how it is split.

Why it matters in practice

If Reading 1 is right, more than half of federal transfers (conditional, complementary and special grants) may be set without the constitutionally required recommendation, which could be open to challenge and weakens predictability for provinces and local levels. If Reading 2 or 3 is right, current practice is lawful, but the repeated disagreement between a constitutional commission and the government would remain unresolved without clarification.

Hypothetical example

Hypothetical: a province receives an equalization grant of the size the Commission recommended, but its conditional grant for health falls by a third in one year by a federal budget decision. Under Reading 1, the Commission should have recommended that amount; under Reading 2, the federal government may fix it under federal law and the Commission's bases.

Possible improvements and trade-offs

  • Amend the Intergovernmental Fiscal Arrangement Act and the NNRFC Act so that the amounts of all grant types follow the Commission's recommendation (the Commission's recommendation).
    Closer alignment with the plain words of Art. 60(3) and a stronger independent check; less flexibility for the federal government to use conditional and special grants for national programmes, and a heavier workload for the Commission.
  • As an interim step, require by law that the federal and provincial governments share planned conditional, complementary and special grant amounts with the Commission by a fixed date each year (the Commission's interim suggestion).
    Improves transparency at low cost; does not settle the constitutional question.
  • Seek an authoritative interpretation (for example through a Supreme Court case or an opinion of the Attorney General) on how Art. 60(3) and 60(6) fit together, and leave the Acts unchanged until then.
    Settles the legal question; slow, and an Attorney General opinion would not bind the Commission.

Questions for legal review

  1. How should Art. 60(3) ('amount of fiscal transfers ... as recommended by the Commission') be read together with Art. 60(6) (conditional, complementary and special grants 'as per federal law') and Art. 251(1)(b)–(c)?
  2. Does 'fiscal transfer' in Art. 60(3) include revenue sharing and royalty distribution as well as grants?
  3. Has the Supreme Court interpreted Art. 60(3) in any decision?

Research status

Researched
2026-10-12
Confidence
Medium confidence — The provisions were read in the official texts, and a constitutional commission and the Auditor General both state the mismatch. Confidence is not high because Art. 60(6) supports a reading under which there is no conflict.
Review
Not yet reviewed by a qualified lawyer.

Still unresolved

  • The Ministry of Finance's position on the Commission's suggestion was not found.
  • No court decision interpreting Art. 60(3) was searched for or found.
  • Whether any bill to amend either Act is pending was not checked.

Sources

  1. राष्ट्रिय प्राकृतिक स्रोत तथा वित्त आयोगको आठौं वार्षिक प्रतिवेदन, २०८३ (Eighth Annual Report, 2083) Checked 2026-10-11
  2. महालेखापरीक्षकको त्रिसट्ठीऔँ वार्षिक प्रतिवेदन, २०८३ (63rd Annual Report of the Auditor General, 2083) Checked 2026-10-11
  3. नेपालको संविधान (Constitution of Nepal) — official Nepali Unicode text Checked 2026-10-11
  4. अन्तर-सरकारी वित्त व्यवस्थापन ऐन, २०७४ (Intergovernmental Fiscal Arrangement Act, 2074) — consolidated Nepali text Checked 2026-10-11
  5. राष्ट्रिय प्राकृतिक स्रोत तथा वित्त आयोग ऐन, २०७४ (National Natural Resources and Fiscal Commission Act, 2074) — consolidated Nepali text Checked 2026-10-11