Federalism:
Federalism is a system based on the concept of multiple governments operating within the same country under a decentralized governance structure. It promotes autonomy, public participation, and accountability in governance while addressing social, cultural, and regional diversity. In a federal system, different levels of government govern the same territory and population by sharing powers and responsibilities according to the constitution.
Federal Structures in the World and Their Types (Relations, Powers, and Tiers):
Based on Relations:
- Dual Federal Structure: Both the State and Central Governments function independently. Examples: Belgium, Australia, Brazil, Switzerland, etc.
- Cooperative Federalism: Governments at different levels function interdependently and cooperatively. Examples: India, Germany, South Africa, Brazil, Canada, Malaysia, Nepal, etc.
Based on Distribution of Powers:
- Federal Structure with Equal Power Division: All states or Provinces share powers equally. Examples: Australia, the USA, Belgium, Germany, Nepal, etc.
- Federal Structure with Unequal Power Distribution: States or Provinces receive varying levels of power. Examples: India, Pakistan, Canada, etc.
Based on Tiers:
- Two-Tier Federal System: A Federal system with two levels of Government. Examples: India, Malaysia, Iraq, Pakistan, Kenya.
- Three-Tier Federal System: A Federal system with three levels of Government. Examples: Nepal, the USA, Australia, Germany, Brazil.
Principles of Federalism (D-LEARN):
Advocates for self-governance, supports shared governance, believes in coordination and co-existence, and emphasizes both self-reliance and interdependence.
- Division of Power: Powers are divided between central and state governments. Each level operates independently within its jurisdiction.
- Levels of Government: Federalism involves at least two levels of government (central and Provincial).
- Equality and Autonomy: Both levels are equal in status and autonomous in their functions.
- Agreement or Constitution: Federalism is based on a written constitution that defines the powers and relationships of the government levels.
- Rule of Law: Both levels must operate under the constitution, ensuring the law is supreme.
- Negotiation and Cooperation: Effective federalism requires coordination and negotiation between the central and state governments.
Bases for Constructing Federalism:
- Coming Together Federalism: Countries unite voluntarily to form a Federal structure. Examples: the USA, Australia, Switzerland.
- Holding Together Federalism: Countries maintain unity by holding together their diverse regions. Examples: Belgium, India, Canada, Spain.
- Federalism for Diversity Management: A system that manages diversity and is applied in countries with multiple ethnicities or regions. Examples: Nigeria, Ethiopia, Sudan, Nepal, etc.
Dimensions of Federalism:
- Political and Governance Dimension:
- Federal, Provincial, and Local Governments,
- Federal, Provincial, and Local Parliaments,
- Autonomous Provincial and Local governance,
- Economic Dimension:
- Planning, budgeting, and programs at Federal, Provincial, and Local levels,
- Revenue collection and operation at all levels,
- Economic functioning at all levels,
- Autonomy in planning and project selection and implementation,
- Administrative Dimension:
- Federal, Provincial, and Local administration,
- Recruitment through Federal and Provincial Public Service Commissions,
- Decentralized Federal and Provincial administration,
- Wide-ranging Local administration with diverse services,
- Judicial Dimension:
- Supreme Court, High Courts, District Courts and Local Judicial Committees,
- Enhancing judicial effectiveness,
- Increasing access to justice,
- Strengthening quasi-judicial institutions,
Action Plan for Implementing Federalism:
- Activate inter-level coordination committees,
- Establish legal arrangements to eliminate overlap between Government levels,
- Align policy formulation and lawmaking between Government levels:
- Implement the 29-point federalism implementation facilitation plan approved in 2075 (2018),
- Establish organizational structures based on powers and workload,
- End the trend of distributing conditional grants for small programs,
- Implement participatory planning methods,
- Ensure financial transfers to provinces and local levels as per constitutional provisions,
- Address shortages of personnel in Provinces and Local Levels,
- Manage the transfer of police and other structures to provinces,
- Ensure uniformity in service benefits for local level officials,
- Ensure efficient and effective Ministries in Provinces,
- Accelerate lawmaking and ensure participation of Provinces and Local Levels in drafting,
- Strengthen Inter Governmental relations and coordination,
- Implement the Public Expenditure Review Commission Report (2075) action plan,
Fiscal Federalism:
- Economic dimensions of the Federal Governance System,
- Taxation:
- Spending,
- Regulating rights shared between the three levels of Government,
- Distribution and adjustment of financial power and responsibilities between the Federal, Provinces, and Local Levels,
- Financial power refers to:
- Defining functions,
- Generating revenue for the functions,
- Spending on tasks, and
- Administration and regulation of functions.
Foundations of Fiscal Federalism:
- Distribution of Responsibilities (Defining Functions),
- Revenue Rights/Authorities,
- Fiscal Transfers,
- Public Debt,
Fiscal Federalism in Nepal:
- Fiscal Rights (Article 59): Provision for all three Federal Units to exercise rights over Revenue, Expenditure, and Debt Management.
- Financial Grants and Revenue Sharing Arrangement (Article 60):
- The Federal Government can provide Fiscal equalization Grants, Conditional Grants, Special Grants, and Supplementary Grants to Provincial and Local Governments.
- Provincial Governments are entitled to provide grants from the revenue they receive from the Federal Government and their own sources to Local Governments within their Province.
- National Natural Resources and Fiscal Commission (Article 26):
- Recommendations regarding financial grants and revenue sharing between Federal Units,
- The constitution also addresses Inter-Provincial trade matters.
- Revenue Sharing:
- The administration of income tax, VAT, and internal excise duties is done by the Federal Government.
- Revenue distribution is split 70%, 15%, and 15% between the Federal, Provincial, and Local Governments respectively.
- Royalties from natural resources are also distributed among the three levels of Government.
- Provincial and Local Governments share taxes on advertisements, entertainment, property registration fees, and vehicle taxes.
- Provision regarding Financial Procedure:
- Chapter 10: Federal Financial Procedure,
- Chapter 16: Provincial Financial Procedure,
- Chapter 19: Local Financial Procedure,
- Revenue collection, accumulation, and management of funds.
- Final Auditing Arrangement in Chapter 22: Auditor General’s Office.
- Legal arrangements for implementing Fiscal Federalism:
- Inter-Governmental Fiscal Arrangement Act, 2074,
- Local Government Operations Act, 2074,
- Provincial Tax and Non-Tax Arrangement Act,
- Financial Procedure Act and Rules for all three levels,
- Public Procurement Act and debt-related laws.
- Structural arrangements for fiscal Federalism:
- Inter-Province Council,
- Federal Fiscal Council,
- Provincial Fiscal Council,
- Ministry of Finance (Federal),
- Provincial Ministry of Economic Affairs and Planning,
- Provincial Comptroller, and other innovative arrangements.
Problems and Solutions for the Transfer, Abolition, and Review of Federal Structure:
The leaders who once advocated for the establishment of a republic and federalism in this country are now in positions of power. However, there appears to be a lack of commitment and urgency among them in effectively implementing federalism.
Major Issues:
- Centralized mindset,
- In the transfer of resources,
- In the coordination and facilitation,
- Failure to enact necessary laws,
- Limiting transferred powers within the Federal,
- Indifference in implementing committee recommendations,
- Lack of sharing best practices,
- Inability to develop leadership and capacity (at the Provincial and Local levels).
Concrete Suggestions for Reform:
- Define the strcture and process,
- Build legal structures,
- Make coordination mechanisms effective,
- Implement recommendations and reports,
- Reduce the number of Ministries,
- Build institutional structures,
- Establish and develop necessary systems,
- Develop system for service delivery,
- Maintain fiscal balance,
- Create necessary operational procedures.
Authored by Kumar Ghising researcher and public policy analyst.