KATHMANDU, Sept 22: Bowing to the pressure from various fronts of the society, the government is preparing to revoke the Value Added Tax (VAT) on electricity tariffs imposed since the start of the current Fiscal Year (FY).
The government’s move comes just two months after the implementation of the provision. Effective from the current FY, the government introduced VAT for the first time on electricity consumption by households, industrial as well as other commercial users. Officials at the Ministry of Energy, Water Resources and Irrigation (MoEWRI) informed that Energy Minister Biraj Bhakta Shrestha and Finance Minister Swarnim Wagle on Sunday discussed removing the VAT slapped on electricity consumption.
Government amends VAT rule to improve compliance
Through the announcement for the budget of FY 2026/27, Finance Minister Wagle implemented a provision to levy VAT on electricity, showing the pretext of securing necessary funds for developing electricity transmission infrastructure. Under this provision, a 5 percent VAT was imposed on electricity tariffs for domestic consumption exceeding 50 units, while a 13 percent VAT was applied to industrial and commercial customers.
The government, however, has been facing criticism stating that the VAT has helped increase costs for industries and businesses and daily expenses for household consumers. As the shortage of cooking gas has also become severe since the past few months, the government is under extra pressure to reconsider its decision to levy VAT.
The Finance Minister Wagle has been accused of imposing a tax contrary to the government’s policy of promoting electric vehicles and induction stoves. Responding to concerns of the Members of Parliament a few months ago, Wagle instead showed his prowess of a two-thirds majority government and insisted on implementing 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.
