Nepal Government Weighs Repeal of VAT on Electricity Tariffs After Public Backlash
Nepal's government is preparing to revoke the Value Added Tax on electricity tariffs introduced just two months ago, following mounting criticism from households, industries, and businesses. Energy Minister Biraj Bhakta Shrestha and Finance Minister Swarnim Wagle discussed the removal on Sunday, though no final decision has been reached on whether to abolish the tax entirely or raise the exemption threshold.
KATHMANDU, Sept 22 — Facing pressure from multiple segments of society, the Nepal government is preparing to revoke the Value Added Tax (VAT) on electricity tariffs imposed at the start of the current Fiscal Year (FY).
The move comes just two months after the provision took effect. From the start of the current FY, the government introduced VAT for the first time on electricity consumption by households, industrial users, and other commercial customers. Officials at the Ministry of Energy, Water Resources and Irrigation (MoEWRI) said Energy Minister Biraj Bhakta Shrestha and Finance Minister Swarnim Wagle discussed removing the tax on Sunday.
Through the budget announcement for FY 2026/27, Finance Minister Wagle introduced the VAT on electricity, citing the need to secure funds for developing electricity transmission infrastructure. Under the provision:
- A 5 percent VAT was imposed on domestic electricity consumption exceeding 50 units
- A 13 percent VAT was applied to industrial and commercial customers
The government has faced sharp criticism that the VAT has raised costs for industries and businesses and increased daily expenses for household consumers. With cooking gas shortages also becoming severe in recent months, the government is under additional pressure to reconsider the levy.
Finance Minister Wagle has been accused of imposing a tax that contradicts the government's own policy of promoting electric vehicles and induction stoves. Responding to concerns raised by Members of Parliament a few months ago, Wagle instead asserted the authority of a two-thirds majority government and insisted on implementing the VAT on electricity tariffs.
Shaligram Bhandari, joint spokesperson for the MoEWRI, said the two ministries have not reached a final decision on whether to abolish the tax entirely or raise the exemption threshold for electricity users.