Page 1 of 21
Journal for Studies in Management and Planning
Available at http://internationaljournalofresearch.org/index.php/JSMaP
e-ISSN: 2395-0463
Volume 01 Issue 09
October 2015
Available online: http://internationaljournalofresearch.org/ P a g e | 231
Municipal own source revenue compliance and its
potentiality (A study of financial management performance
of Hetauda municipality in Nepal)
1 Shankar Prasad Upadhyay (Ph. D. Scholar)
Mewar University, Chittorgarh, Rajasthan, India)
Email: shankarsirs@gmail.com
2 Prof. Dr. Kamal Das Manandhar
Tribhuvan University, Kathmandu, Nepal
Abstract
The major portion of own source revenue of
Hetauda municipality is tax. The main
purposes of this research study are to expose
the own sources revenue potentiality and
analyze the municipal revenue compliance in
Hetauda municipality. Both analytical and
descriptive research designs were applied for
the analysis of revenue potentiality and its
compliance in Damak municipality. Random
sampling method was used to select the
municipality and same method was replicated
to choose the respondents for questionnaire
survey. Questionnaire Survey, Focus Group
Discussion, and Key Informants Interview
tools were used for data collection. Both the
taxpayers and municipal policymaking
advisors were the respondents of the study.
Participants for focus group discussion and
key informants for personal interview were
selected purposively. Most of the taxpayers
(i.e. 85.8 %) have paid municipal tax
revenues and out of them, more than 39
percent taxpayers have paid the municipal
tax below one thousand rupees per annum.
The contribution of own source revenue to
total revenue has been fluctuating over the
period of ten years. From the view point of
municipal policy making advisors, integrated
property tax seems more potential source of
revenue in comparison to other own sources.
Tax compliance is to some extent
satisfactory. Tax revenue covers the main
segment of municipal own source revenues.
From the policymaking advisors' perspective,
there is significant correlation (0.669)
between service delivery fee and service
quality at the one percent level (2-tailed)
which indicates that service delivery fee
Page 2 of 21
Journal for Studies in Management and Planning
Available at http://internationaljournalofresearch.org/index.php/JSMaP
e-ISSN: 2395-0463
Volume 01 Issue 09
October 2015
Available online: http://internationaljournalofresearch.org/ P a g e | 232
imposed by the municipality for sanitation
service is substantially satisfactory.
Key Words: financial management,
Municipal revenue compliance, Municipal
tax revenue, Own source revenue,
performance, Revenue potentiality
1. Introduction
The key tax revenue sources of
municipalities are usually integrated property
tax, house rent tax, house and land tax,
vehicle tax, business/profession/enterprise
tax, advertisement tax, and commercial video
tax in Nepal. Similarly, the major nontax
revenue sources are; municipal property
rental charge, service fee/charge, building
permit fee, and vehicle parking charge, etc.
(LSGA, 1999). Whatever revenue collection
method is adopted the municipalities must be
transparent and it should be tolerable to the
taxpayers (Study Team, 2005). Decision
pertaining to the local revenue administration
is vital for municipal decision making
advisors and decision makers. In general,
revenues collected in municipalities are,
classified into two categories: internal and
external. Internal revenues are also
commonly categorized into two types and
they are tax and nontax revenues (Wegner,
2008).
Developmental challenges are felt more at
local government sphere, because of its
closeness to where people live. However,
huge service delivery backlogs require the
mobilization of all spheres of government to
work together in an integrated manner within
the spirit of co-operative government. No
single sphere of government can fulfill this
role and mandate by working alone in
isolation. (Tsatsire, 2008). The Government
of Nepal has affirmative feelings on the
increasing efficiency in service delivery, but
it is hindered by several aspects, including
lack of regular monitoring of performance
and sound procurement plans,
nonperformance of competitive tendering and
lack of performance auditing as well.
Unnecessary stress of expenditures toward
the end of the fiscal year is the main reason
of these factors (Ministry of Finance, 2008).
For the local government benefit principle of
taxation is more appropriate and for the
central government ability to pay principle is
suitable. But, the ground reality in
developing countries, like Nepal, is vast
difference. There are only a few tax bases in
practice. Consequently, the municipality has
become very weak to administer the tax.
Page 3 of 21
Journal for Studies in Management and Planning
Available at http://internationaljournalofresearch.org/index.php/JSMaP
e-ISSN: 2395-0463
Volume 01 Issue 09
October 2015
Available online: http://internationaljournalofresearch.org/ P a g e | 233
Actually, municipal taxes or fees are paid as
a charge for the benefits obtained from the
services. Therefore, benefit principle
becomes workable only when benefit from
local services can be approximately identified
(Shrestha, 2009). The central government’s
role is mainly regulatory, i.e., requiring the
local government level to follow procurement
regulations when purchasing transport
services. It also plays a financial role by
giving grants to the local government
(Hansson, 2010).
Rewarding tax payers, positive peer attitude,
offering a prize for best taxpayers and aim of
low profits etc. are the encouraging factors of
municipal revenue compliance. Likewise,
inability to be aware of tax laws or
insufficient tax education programmes, high
rates of tax and non tax revenues, unfairness
or chances of misuse of revenues, and
complex tax administration procedures, etc.
are the probable factors of noncompliance of
revenue (Mumumba Omweri Marti, 2010).
Especially in developing countries like
Nepal, many researches are performed on
taxpayers' attitude towards municipality and
the effect of individual interest on tax fraud
as well as on other factors influencing tax
compliance behavior (James O Alabede,
2011). The fiscal exchange theory of public
finance hints that the existence of
government expenditures may encourage
compliance and the governments can boost
compliance by making available goods or
services that municipal people demand more
efficiently. According to the political
legitimacy theory, it is shaped by the degree
to which citizens believe the municipality. In
conclusion, we come across some indications
that tax knowledge and awareness have a
significant impression on revenue
compliance point of view (Merima Ali,
2013). Tax source is an important own source
revenues of municipalities. Both the benefit
principle and ability to pay principle of
taxation are the basic philosophies (BSBA,
2013). Revenue compliance is related to
taxpayer's perceptions of value for money
and fairness in the sub-national revenue
system and that appropriate enforcement can
be productive (Smoke, 2013). Local revenue
collection strategies are varied from
municipalities to municipalities. But method
of revenue collection unanimously, is an
important decision for each municipality.
Collection through contractors or public
private partnership (PPP) model and direct
collection by municipalities themselves are
common methods. Whatever may be the
methods of revenue collection both
