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🇳🇵 Nepal /Economy & Trade

Nepal imposes 5% VAT on electricity, sparking inflation fears

From Kathmandu Post · () English

Translated from English, summarized and contextualized by DistantNews.

At a glance

News Named sources New plan
  • Nepal's government will impose a 5% Value Added Tax (VAT) on electricity consumption above 50 units starting next fiscal year, aiming to raise approximately Rs5.5 billion annually.
  • Finance Minister Swarnim Wagle stated the tax will fund crucial infrastructure development for generation, transmission, and distribution, while critics warn of increased inflation and a burden on lower-income households.
  • The government estimates the tax will add a small amount to monthly bills for most households, but acknowledges potential affordability challenges and has pledged to review the policy if necessary.

Nepal's government is set to implement a 5% Value Added Tax (VAT) on electricity consumption exceeding 50 units, a move expected to generate around Rs5.5 billion annually. Finance Minister Swarnim Wagle announced the tax, emphasizing its role in financing essential infrastructure expansion for the nation's energy sector. This includes upgrades to generation, transmission, and distribution networks to meet rising demand.

Around 1.2 million households in Nepal consume between 51 and 150 units of electricity. For them, a 5 percent VAT will add only up to Rs24 per month.

— Swarnim WagleFinance Minister Swarnim Wagle explaining the limited impact of the VAT on lower electricity consumption.

Despite the government's assurances that the tax will primarily affect higher consumption levels and have a limited impact on ordinary households, concerns are mounting. Consumers, economists, and former energy officials warn that the additional tax burden could fuel inflation and disproportionately affect middle- and low-income families. Critics also highlight a perceived contradiction in policies, noting recent customs duty exemptions for clean energy adoption alongside this new electricity tax.

Wagle defended the policy, stating that the tax targets higher usage, such as air conditioning or EV charging, and that the additional cost for most households would be minimal, ranging from Rs24 to Rs102 per month. He stressed the significant investment required, over Rs85 billion in the next three to four years, for energy infrastructure development. The minister also indicated a willingness to review the policy if genuine affordability issues arise for consumers.

If it is found that people cannot afford electricity due to this measure, we will review the policy.

— Swarnim WagleFinance Minister Swarnim Wagle assuring potential affordability challenges would be addressed.

The Nepal Electricity Authority is currently managing increasing demand and seasonal consumption fluctuations. The government's decision to introduce the VAT comes as it seeks to bolster the energy sector's capacity, with Prime Minister Balendra Shah reiterating that all collected revenue will be dedicated to infrastructure development.

the VAT rate amounted to only Rs5 per Rs100 of electricity c

— Balendra ShahPrime Minister Balendra Shah defending the tax and stating its full allocation to energy infrastructure development.
DistantNews Editorial

Originally published by Kathmandu Post in English. Translated, summarized, and contextualized by our editorial team with added local perspective. Read our editorial standards.

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