Local Government Operation Act 2074 — Loksewa Exam Notes and Questions

Updated: March 26, 2026 • Reading time: 12 min • Loksewa Tayari App

If you are preparing for any Loksewa exam in Nepal — whether it is for Section Officer (Sakha Officer), Nayab Subba, Kharidar, or a local-level technical post — there is one law you simply cannot afford to ignore: the Local Government Operation Act 2074 (Sthaniya Sarkar Sanchalan Ain 2074). This single piece of legislation defines how all 753 local governments in Nepal function, manage their finances, deliver services, and exercise judicial authority. It is the cornerstone of Nepal’s federal experiment at the grassroots level, and Loksewa examiners know it.

Year after year, questions drawn from this Act appear in written examinations and interviews across multiple service groups. Understanding the Act thoroughly gives you an advantage not only in the governance and law section but also in general knowledge and essay-type questions about Nepal’s three-tier federal structure. This article provides a complete, exam-focused breakdown of the Local Government Operation Act 2074 with key sections, tables, model questions, and frequently asked questions.

Overview of the Local Government Operation Act 2074

The Local Government Operation Act 2074 (Sthaniya Sarkar Sanchalan Ain 2074) was enacted by the Parliament of Nepal on 15 October 2017 (29 Ashwin 2074 BS). It replaced the earlier Local Self-Governance Act 2055 and was designed to operationalize the provisions of the Constitution of Nepal 2072 relating to local governance. The Constitution introduced a three-tier federal structure — federal, provincial, and local — and this Act provides the legal framework for the local tier to function.

The Act applies to all 753 local governments in Nepal, which consist of:

• 6 Metropolitan Cities (Mahanagar Palika)
• 11 Sub-Metropolitan Cities (Upa-Mahanagar Palika)
• 276 Municipalities (Nagarpalika)
• 460 Rural Municipalities (Gaunpalika)

The primary objectives of the Act are to:

1. Define the governance structure and operational procedures of local bodies.
2. Specify the legislative, executive, and quasi-judicial powers of local governments.
3. Establish the financial management framework including budgeting, taxation, and auditing at the local level.
4. Lay out the mechanisms for service delivery, development planning, and coordination with provincial and federal governments.
5. Create the Nyayik Samiti (Judicial Committee) for local-level dispute resolution.

The Act is divided into 11 parts (Bhag) and contains 105 sections (Dafa). It also includes several schedules (Anusuchi) that enumerate the exclusive and concurrent powers of local bodies. Understanding the overall architecture of the Act is essential before diving into specific provisions, which we cover in the next section.

Structure and Key Sections of the Act

The Local Government Operation Act 2074 is organized systematically into 11 parts. Each part addresses a distinct area of local governance. The following table provides a complete breakdown of the Act’s structure — a table that is highly useful for Loksewa revision.

Key Definitions (Section 2)

Section 2 of the Act defines several terms that appear repeatedly in Loksewa questions:

• Gaun Palika (Rural Municipality): A rural local government unit established under the Constitution.
• Nagarpalika (Municipality): An urban local government unit, which can be a Municipality, Sub-Metropolitan City, or Metropolitan City.
• Gaun Sabha / Nagar Sabha: The legislative assembly of the rural municipality or municipality respectively.
• Karyapalika (Executive): The executive body of the local government, headed by the Chairperson (Adhyaksha) in rural municipalities and the Mayor (Nagar Pramukh) in municipalities.
• Ward (Wada): The smallest administrative unit within a local government, headed by a Ward Chairperson (Wada Adhyaksha).
• Nyayik Samiti: The Judicial Committee formed at the local level for dispute resolution.

Powers of Local Government

The powers of local governments under the Local Government Operation Act 2074 derive directly from the Constitution of Nepal 2072, particularly Schedules 8 and 9. Schedule 8 lists the exclusive powers of local bodies, while Schedule 9 lists the concurrent powers shared among all three tiers of government. The Act elaborates on how these constitutional powers are to be exercised in practice.

Exclusive Powers of Local Governments

Under Schedule 8 of the Constitution and as operationalized by Part 5 of the Act, local governments have exclusive authority over the following areas:

• Municipal policing, local taxation, and management of local services
• Basic and secondary education management
• Basic health and sanitation services
• Local roads, rural roads, agricultural roads, and irrigation
• Management of local markets and Haat Bazaar
• Local-level development plans and projects
• Water supply and small-scale hydroelectricity
• Local records and data management (births, deaths, marriages, migration)
• Cooperative management and regulation at the local level
• Disaster management at the local level
• Protection and management of local cultural heritage and natural resources
• Local sports, language, and culture promotion

Concurrent Powers (Shared with Federal and Provincial)

Under Schedule 9 of the Constitution, local governments share concurrent powers with federal and provincial governments in areas such as:

• Cooperatives
• Education, health, and media at intersecting levels
• Agriculture and livestock development
• Services such as electricity, drinking water, and irrigation beyond local capacity
• Forest, wildlife, and environmental conservation
• Social security and poverty alleviation programs

Law-Making Authority

One of the most significant powers granted by the Act is the authority of local governments to make their own laws (Ain) on matters within their exclusive jurisdiction. The Gaun Sabha or Nagar Sabha can pass local legislation following a defined process:

1. A bill (Bidheyak) is introduced by the executive in the Assembly.
2. The Assembly discusses and may amend the bill.
3. A majority vote passes the bill.
4. The Chairperson or Mayor authenticates the bill, which then becomes law.

Executive Powers

The executive body (Karyapalika) of the local government exercises significant powers under the Act, including:

• Implementing decisions of the Assembly
• Preparing annual budgets, plans, and programs
• Managing local government staff and human resources
• Issuing permits, licenses, and recommendations
• Coordinating with provincial and federal agencies operating within their territory
• Declaring local emergencies in cases of natural disaster

The Ward Committee, headed by the Ward Chairperson, also has specific powers including data collection, recommending services to residents, monitoring ward-level projects, and conducting preliminary mediation in local disputes.

Financial Management at the Local Level

Part 6 of the Local Government Operation Act 2074 (Sections 49 to 69) is arguably the most detailed section of the Act and a goldmine for Loksewa questions. It establishes a comprehensive financial framework for local governments covering revenue generation, budgeting, expenditure, grants, auditing, and public procurement.

Revenue Sources

Local governments are empowered to generate revenue through multiple channels:

• Local Taxes: Property tax (Sampatti Kar), land revenue (Malpot), house rent tax, vehicle tax, entertainment tax, advertisement tax, and business tax
• Service Charges and Fees: Charges for local services such as building permits, vital registration, recommendation letters, and parking
• Natural Resource Revenue: Income from sand, gravel, stone, and other local natural resource extraction
• Fines and Penalties: Revenue collected from penalties imposed by the Judicial Committee and other local enforcement
• Internal Loans: Local governments may, with approval, take internal loans for development projects

Grants from Federal and Provincial Governments

A significant portion of local government revenue comes from intergovernmental fiscal transfers. The Act recognizes several types of grants:

Consolidated Fund (Sanchit Kosh)

Every local government must maintain a Consolidated Fund (Sanchit Kosh) into which all revenues, grants, and loans are deposited. No expenditure can be made from this fund without approval through the annual budget passed by the Assembly. This is a critical constitutional and legal requirement that mirrors the federal Consolidated Fund provision.

Annual Budget Process

The budget process at the local level follows a structured timeline:

1. Revenue Estimation: The executive estimates expected revenue from all sources for the upcoming fiscal year.
2. Priority Setting: The executive, in consultation with ward committees, identifies priority areas for spending.
3. Budget Preparation: The Chief Administrative Officer (Pradhaan Prashasakiya Officer) prepares the budget document.
4. Executive Approval: The Karyapalika reviews and approves the budget proposal.
5. Assembly Presentation: The Chairperson or Mayor presents the budget to the Gaun Sabha or Nagar Sabha.
6. Discussion and Approval: The Assembly debates and passes the budget, possibly with amendments.
7. Implementation: Once approved, the executive implements the budget through the fiscal year.

Auditing and Financial Accountability

The Act mandates that every local government’s accounts must be audited annually. The Auditor General (Mahalekha Parikshak) has the authority to audit local government finances or may delegate this function. Local governments must also establish an internal audit mechanism and respond to audit observations within a specified timeframe. Financial transparency is further enhanced through the requirement to publish annual financial statements and make them accessible to the public.

Service Delivery by Local Governments

One of the defining features of the Local Government Operation Act 2074 is its emphasis on bringing government services closer to the people. Under the Act, local governments are the primary service delivery units for citizens in many critical areas of daily life.

Vital Registration Services

Local governments are responsible for all vital event registration (Byaktik Ghatana Darta), including:

• Birth registration (Janma Darta)
• Death registration (Mrityu Darta)
• Marriage registration (Bibaha Darta)
• Divorce registration
• Migration registration (Basai Sarai)

These services are typically handled at the Ward Office level, with the Ward Chairperson serving as the local registrar. The move to bring vital registration to the local level has been one of the most visible changes in governance since the Act came into effect.

Social Security and Welfare

Local governments administer several social security programs on behalf of the federal government, including:

• Old-age allowance (Jestha Nagarik Allowance)
• Single women’s allowance (Ekal Mahila Allowance)
• Disability allowance (Apangata Allowance)
• Child protection grants
• Endangered and marginalized community allowances

Infrastructure and Development

Local governments plan and execute local infrastructure projects including local roads, bridges, community buildings, water supply systems, sanitation facilities, and small irrigation schemes. The Act requires that development projects follow a bottom-up planning process starting from ward-level consultations, through settlement-level identification of needs, to the preparation of a comprehensive local development plan by the executive.

Education and Health

Under the Act, basic and secondary schools fall under the management of local governments. This includes teacher management (for community schools), school infrastructure, scholarship distribution, and quality monitoring. Similarly, local health facilities — health posts (Swasthya Chowki), primary health care centres, and birthing centres — are managed and supervised by local governments. The transition of education and health management to local bodies has been one of the most significant administrative shifts in Nepal’s governance history.

Permits and Recommendations

Local governments issue various permits and recommendation letters that citizens need for daily life and official processes:

• Building construction permits (Bhawan Nirman Anumati)
• Business registration and licensing
• Citizenship recommendation letters
• Relationship verification (Nata Praman)
• Land-use permits and zoning compliance certificates

Judicial Functions of Local Bodies

Part 7 of the Local Government Operation Act 2074 (Sections 70 to 77) establishes the Nyayik Samiti (Judicial Committee) at every local government level. This is one of the most innovative features of the Act and a frequent topic in Loksewa examinations. It represents the quasi-judicial function of local government, giving municipalities and rural municipalities the power to adjudicate certain types of disputes.

Composition of the Judicial Committee

The Nyayik Samiti is composed of:

• Chairperson: The Deputy Mayor (Upa-Nagar Pramukh) in municipalities or the Vice-Chairperson (Upa-Adhyaksha) in rural municipalities
• Members: Two members nominated by the executive from among the elected representatives

The committee must include at least one woman member. A secretary is appointed from among the local government staff to handle administrative duties of the committee.

Jurisdiction of the Judicial Committee

The Judicial Committee can hear and decide cases involving:

• Boundary disputes between individuals (not between local governments)
• Minor property disputes involving amounts up to NPR 1,00,000 (one lakh rupees)
• Fence and wall disputes between neighbours
• Disputes related to waterways and irrigation channels at the local level
• Damage to private or public property
• Family disputes and domestic matters (excluding serious criminal offences)
• Disputes related to wages and compensation for local employment

Mediation Before Adjudication

Part 8 of the Act (Sections 78 to 82) mandates that the Judicial Committee must first attempt mediation (Madhyasthata) before formally adjudicating any case. A Mediation Committee is formed, typically consisting of local mediators acceptable to both parties. If mediation succeeds, the settlement is binding. If mediation fails within the prescribed timeframe, the Judicial Committee proceeds to hear the case formally.

Appeal Process

Decisions of the Judicial Committee can be appealed to the District Court (Jilla Adalat) within 35 days of the decision. This appellate mechanism ensures that the judicial functions of local bodies remain within the broader framework of Nepal’s judicial system and that parties have access to higher courts if they are dissatisfied with local-level decisions.

Relationship with Provincial and Federal Government

Part 10 of the Local Government Operation Act 2074 (Sections 91 to 97) addresses the critical question of how local governments interact with provincial and federal governments. Nepal’s federal system is designed to be cooperative and coordinated rather than strictly hierarchical, and the Act reflects this principle.

Principles of Intergovernmental Relations

The Act establishes several guiding principles for intergovernmental relations:

• Cooperation (Sahayog): All three tiers of government must cooperate with each other in the exercise of their respective powers.
• Coordination (Samanwaya): Mechanisms must be established for regular coordination to avoid duplication and conflict.
• Coexistence (Sahaastitwa): Each tier of government respects the autonomy and jurisdiction of the other tiers.

District Coordination Committee (Jilla Samanwaya Samiti)

The Act establishes the District Coordination Committee (DCC) as a coordinating body among local governments within a district. The DCC:

• Coordinates development activities among local governments in the district
• Monitors and evaluates district-wide development programs
• Facilitates conflict resolution between local governments
• Acts as a link between local governments and the provincial government

The DCC is headed by a Chairperson elected from among the Mayors and Chairpersons of local governments in the district. It is important to note that the DCC does not have executive or legislative authority — its role is purely coordinative.

Federal and Provincial Oversight

While local governments enjoy significant autonomy, the Act does provide for certain oversight mechanisms:

• The federal government may issue directives on matters of national policy that local governments must follow.
• Provincial governments may coordinate and monitor the implementation of concurrent powers.
• The Auditor General has the authority to audit all local government finances.
• The National Natural Resources and Fiscal Commission determines the formula for grant distribution.
• Federal laws prevail over local laws in case of conflict on concurrent matters.

Conflict Resolution Between Government Tiers

When disputes arise between a local government and a provincial or federal body, the Act provides for resolution through dialogue, mediation, and — as a last resort — adjudication by the Constitutional Bench of the Supreme Court. Similarly, disputes between two local governments may be resolved by the District Coordination Committee or, if unresolved, by the provincial government.

Understanding the intergovernmental dynamics is crucial for Loksewa candidates because questions in the governance section often test whether candidates can distinguish between the autonomous powers of local governments and the areas where federal or provincial oversight applies. For a deeper understanding of how the three tiers interact, refer to our guide on the federal system of Nepal and its three-tier structure.

Model Questions for Loksewa Exams

The following model questions are based on the most frequently tested topics from the Local Government Operation Act 2074. These questions are representative of what appears in Loksewa exams for Section Officer, Nayab Subba, and Kharidar positions. Test yourself before checking the answers.

Frequently Asked Questions (FAQ)

Conclusion

The Local Government Operation Act 2074 is not just another law to memorize for your Loksewa exam — it is the legal foundation of how governance actually works at the grassroots level in Nepal. From the way your local municipality collects taxes and delivers health services to the way disputes between neighbours are resolved through the Judicial Committee, this Act shapes the daily experience of millions of Nepalis.

For Loksewa candidates, mastering this Act means understanding the structure (11 parts, 105 sections), the powers (exclusive under Schedule 8, concurrent under Schedule 9), the financial framework (four types of grants, consolidated fund, budget process), the judicial mechanism (Nyayik Samiti, mandatory mediation, appeal to District Court), and the intergovernmental relationships (cooperation, coordination, coexistence). These are the areas from which examiners consistently draw questions.

Use the model questions and table summaries in this article as your revision checklist. Practice answering them under timed conditions. And for a complete set of practice questions covering the Local Government Operation Act and other governance topics, explore the Loksewa Tayari App mock tests — they are specifically designed to match the pattern and difficulty of real Loksewa exams.