Nepal introduces VAT on electricity: 5% for households above 50 units, 13% for businesses

Nepal is implementing a new Value Added Tax (VAT) regime for electricity consumption starting July 17. Households using more than 50 units per month will now pay a 5% VAT on the electricity consumed beyond that limit. This change aims to increase government revenue while providing a concession for lower-consumption domestic users.

Businesses, commercial entities, and other non-domestic consumers face a steeper increase, with a 13% VAT applied to their entire electricity bills. The Inland Revenue Department has issued the Electricity Services Value Added Tax Collection Directive, 2026, to formalize the new tax structure.

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The government’s policy is to levy five percent VAT on domestic consumers and 13 percent on all other consumers, and we have updated our billing system accordingly.

The Nepal Electricity Authority (NEA) has completed its VAT registration and upgraded its billing software to manage the new tax rates. Acting NEA Managing Director Dirghayu Shrestha stated that the authority is prepared for the policy, which differentiates between domestic and other consumer categories. He also noted that VAT registration will enable the NEA to claim input tax credits on its operational expenses.

For consumers, the impact varies. A household using 45 units will remain VAT-exempt. However, if consumption rises to 60 units, only the 10 units exceeding the threshold will be taxed at 5%. In contrast, a government office consuming 100 units will be charged 13% VAT on the full amount. Data from the NEA indicates that approximately 2.6 million domestic consumers use more than 50 units monthly.

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VAT registration would also allow the authority to claim input tax credits on purchases of equipment, materials and other goods used in its operations.