Property taxation in Budhanilkantha municipality, Nepal : an analysis on implementation for public services

Abstract

This study delves into the property tax system in Budhanilkantha Municipality, Nepal, focusing on its implementation and effectiveness in supporting public services. Rapid urbanization and increasing demands for urban infrastructure have posed significant challenges in generating adequate revenue through property taxes. The primary objective of this research is to analyze the current property tax functional system, identify its weaknesses, and propose improvements to enhance revenue generation for service delivery. The research adopts an exploratory approach, utilizing qualitative methods such as focus group discussions (FGDs), key informant interviews (KIIs), and expert questionnaires to gather diverse perspectives from elected representatives, municipal staff (revenue section and ward offices), and tax experts with extensive experience in local taxes, including property tax, in various municipalities. The study's conceptual framework is grounded in interpretivism, emphasizing the subjective experiences and interactions of stakeholders involved in the property tax system. The analysis focuses on identifying key themes related to policy, administrative efficiency, and technological integration. Key findings reveal several critical issues:  Only 37.43% of properties are currently included in the tax net, indicating substantial gaps in property identification and coverage.  Property assessments average about 38.37% of market valuations, indicating significant undervaluation.  The billing and collection processes are predominantly manual, with an underutilized online payment system. Despite these challenges, the municipality achieves nearly 100% budget realization, with a modest annual revenue growth from property taxes of 11% on average based on the past five years (FY 2075/76-FY 2079/80). According to the past five years' data, property tax currently accounts on average:  Approximately 4% of the municipality's total revenue.  About 10% of its own source revenue.  13% of local tax revenue. Variables identified in the conceptual framework—policy, administrative, and technological factors—were crucial in evaluating the system's functionality. Specific indicators, such as tax base definition, assessment criteria, property identification methods, valuation techniques, collection, enforcement, and the use of information and communication technology (ICT), provided a detailed analysis of the system's weaknesses and potential areas for improvement. The study highlights the need for comprehensive reforms, including the adoption of advanced ICT systems, improved property identification and valuation methods, and enhanced taxpayer services. The research underscores the importance of political will and public awareness in fostering a culture of tax compliance and supporting sustainable municipal finance. These improvement processes aim to create a more equitable, efficient, and transparent property tax system. The study concludes that while property taxes alone cannot fully fund all public services, improving the property tax system can significantly enhance the municipality's financial capacity to meet the growing demands for urban services. The proposed improvements aim to create a more equitable, efficient, and transparent property tax system, ultimately contributing to better service delivery in Budhanilkantha Municipality.