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Part-5
Structure of State and Distribution of State Power
56. Structure of State : (1) The main structure of the Federal Democratic Republic
of Nepal shall be of three levels, namely the Federation , the State and the Local
level.
(2) The Federation , State and Local l evels shall exercise the power
of State of Nepal pursua nt to this Constitution and law .
(3) There shall be States consisting of the Districts as mentioned in
Schedule -4 existing in Nepal at the time of commencement of this
Constitution.
(4) There shall be Village Institutions , Municipalities and District
Assemblies under the Local level. The number of Wards in a Village
Institution and Municipality shall be as provided for in the Federal law.
(5) Any Special, Protected or Autonomous Region can be set by the
Federal law for social, cultural protection or economic developme nt.
(6) The Federation , State and Local levels shall protect Nepal's
freedom, sovereignty, territorial integrity, independence, national interest,
overall development, multi -party, competitive, democratic, republican, federal
system of governance , human ri ghts and fundamental rights, rule of law,
separation of powers and check and balance, egalitarian society b ased on
pluralism and equality, inclusive representation and identity.
57. Distribution of State power : (1) The powers of the Federation shall be ves ted in
the matters enumerated in Schedule -5, and such powers shall be exercised
pursuant to this Constitution and the Federal law.
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(2) The powers of a State shall be vested in the matters enumerated
in Schedule -6, and such powers shall be exercised pursuant to this Constitution
and the State law.
(3) The concurrent powers of the Federation and the State shall be
vested in the matters enumerated in Schedule -7, and such powers shall be
exercised pursuant to this Const itution, the Federal law and the State law.
(4) The powers of the Local l evel shall be vested in the matters
enumerated in Schedule -8, and such powers shall be exercised pursuant to this
Constitution and the law made by the Village Assembly or Municipal
Assembly.
(5) The concurrent powers of the Federation, State and Local l evels
shall be vested in the matters enumerated in Schedule -9, and such powers shall
be exercised pursuant to this Constitution , the Federal law, the State law and
the law made by the Village Assembly or Municipal Assemb ly.
(6) Any law to be made by the State Assembly, Village Assembly or
Municipal Assembly pursuant to clause (3) or (5) shall be so made as not to be
inconsistent with the Federal law, and any law made by the State Assembly,
Village Assembly or Municipal As sembly which is inconsistent with the
Federal law shall be invalid to the extent of such inconsistency.
(7) Any law to be made by the Village Assembly or Municipal
Assembly pursuant to clause (5) shall be so made as not to be inconsistent with
the State la w, and any law made by the Village Assembly or Municipal
Assembly which is inconsistent with the State law shall be invalid to the extent
of such inconsistency.
58. Residual p owers : The Federation shall have power on any matter not
enumerated in the Federa l List, State List, List of Local level or Concurrent
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List or on any matter which is not so specified in this Constitution as to be
exercised by any level.
59. Exercise of financial p owers : (1) The Federation, State and Local l evel shall
make laws, make an nual budget, decisions, formulate and implement policies
and plans on any matters related to financial powers within their respective
jurisdictions.
(2) The Federation may so make necessary policies, standards and
laws on any of the matters enumerated in t he Concurrent List and other areas
of financial powers as to be applicable also to the States.
(3) The Federation, State and Local l evel shall make budget of their
respective levels, and the time for submission of budget by the State and Local
level sha ll be as provided for in the Federal law.
(4) The Federation , State and Local level shall provide for the
equitable distribution of benefits derived from the use of natural resources or
development. Certain portions of such benefits shall be distributed, purs uant to
law, in forms of royalty, services or goods to the project affected regions and
local communities.
(5) If, in utilising natural resources, the local community desires to
make investment there in, the Federation, State and Local l evel shall accord
priority to such investment in such portion as provided by law on the basis of
the nature and size of such investment .
(6) The Government of Nepal shall have power to obtain foreign
assistance and borrow loan s. Such assistance or loan s shall be so obtained or
borrowed as to have macro -economic stability of the country.
(7) Provisions relating to the management of budget deficits and
other fiscal discipline of the Federation, State and Local l evel shall be as
provided for in the Federal law.
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60. Distribution of sources of revenue : (1) The Federation, State and Local l evel
may impose taxes on matters falling within their respective jurisdiction and
collect revenue from these sources.
Provided that provisions relating to the imposition of taxes and
collection of revenue on matters that fall within the Concurrent List and on
matters that are not included in the Li st of any l evel shall be as determined by
the Government of Nepal.
(2) The Government of Nepal shall make provisions for the equitable
distribution of th e collected revenue to the Federation, State and Local l evel.
(3) The amount of fiscal transfer receivable by the State and Local
level shall be as recommended by the National Natural Resources and Fiscal
Commission .
(4) The Government of Nepal shall, on t he basis of the need of
expenditure and revenue capacity, distribute fiscal equalization grants to the
State and Local level.
(5) Each State shall, in accordance with the State law, distribute
fiscal equalization grants out of the grants received from the Government of
Nepal and revenues collected from its sources, on the b asis of the need of
expenditure and revenue cap acity of its subordinate Local l evel.