The government has introduced a multi-rate VAT system by imposing a 5 percent value-added tax (VAT) on electricity and ride-sharing. The government has not formally called it a 'multi-rate'.

Currently, there is a single rate of 13 percent and a zero rate on taxable goods and services. As announced by Finance Minister Swarnim Wagle in the budget on Friday, zero percent, 5 percent and 13 percent VAT will be levied from July 1. The government has also stated that it will form a high-level suggestion committee in the budget to study the relevance of multiple rates in VAT and submit suggestions.

Since there is currently no provision for multiple rates in the law, it has been decided to impose a 5 percent tax as a 'reduced rate', said Shiva Sharma, Director of the Internal Revenue Department. 'There is still a single rate in the law. That is why we have called it a reduced rate,' he said, 'Practically, 5 percent VAT has been imposed.' But formally, we are not in a situation where we have gone to multi-rate.'

According to chartered accountant Umesh Pandey, the government has already announced that it will impose multi-rate by publishing a notice in the gazette, so it will be implemented now. 'VAT was previously zero and 13 percent, now 5 percent has been added, that is, it will be zero, 5 and 13 percent,' he said.

The budget has introduced a multi-rate VAT system by imposing 5 percent VAT on ride sharing and electricity, now zero percent, 5 percent and 13 percent VAT The Department of Internal Revenue has stated that the annual turnover of emerging market ride-sharing in Nepal is about 20 billion rupees. Sharma, director of the department, said that riders do not have to be registered for VAT, but ride-sharing platforms have to be registered for VAT. 'Some platforms are also registered for VAT. This is a modality of reverse VAT. Riders themselves do not have to be registered for VAT, for example, taxis/bikes do not have to be registered,' he said.

Sharma said that riders will also have to pay VAT when they pay commission to the platform. ‘The company pays VAT every month based on where the ride was taken from and how much money was taken,’ he said, ‘Sometimes it is paid online and sometimes in cash.’ Therefore, since there is no separate billing for it, VAT is not refunded.’

It has been arranged that service recipients who consume more than 50 units of electricity per month will have to pay 5 percent VAT. According to Sharma, director of the department, if a person consumes 200 units of electricity per month, he will have to pay 5 percent VAT only on 150 units of electricity. In the case of businessmen or companies, even if VAT is refunded, the person will not get it back.

Sharma said that the government is investing in large projects even after taking loans as the principle of VAT is always applied to the last item. CA Pandey said that there is a provision that 5 percent VAT is applied to transporting goods through ride sharing and 13 percent VAT is applied to transporting the same amount, and said that further study is needed. ‘VAT is applied to hailing a taxi through ride sharing, but VAT is not applied to taking a taxi on the road,’ he said. ‘There is a threshold of Rs 3 million per year to register for VAT. The government estimates that it is not enough for riders. It seems that the government is focused on collecting taxes.’

According to Pandey, the government has imposed VAT on electricity instead of considering it as a basic necessity. ‘Now rice has become a basic necessity. But electricity is needed to cook it. Looking at it from that perspective, there is also a question as to why the government imposed VAT on a product that has not been subject to VAT so far,’ he said.

Instead of introducing an incentive policy to increase the consumption of electricity produced within the country, the government has taken steps to discourage the use of electricity. The additional 5 percent tax should be withdrawn immediately: – Kulman Ghising, former Minister of Energy Pandey said that imposing VAT on electricity bills exceeding 50 units will burden the administrative side of the Nepal Electricity Authority. ‘The authority also does transmission and distribution.’ But VAT is levied on distribution. Therefore, the administrative burden on the authority is greater than the tax collected from electricity,’ he said. ‘Instead, if income tax was collected directly from the authority, it could be cheaper than collecting VAT.’

The government has introduced double taxation on VAT by adding subsections (1a) and (1b) after subsection 1 of Section 7 of the Value Added Tax Act. ‘The Government of Nepal may, by a notification in the Nepal Gazette, establish multiple rates without increasing the tax rate and specify the goods and services subject to tax accordingly,’ Subsection (1A) states. Subsection 1B states that a 5 percent value-added tax will be applied to ride-sharing and electricity services. It states, ‘When a person operating a ride-sharing service (ride-sharing operator) engages in a transaction with a person providing transportation and transportation services through a platform operated by a person operating a ride-sharing service (ride-sharing operator), the person operating the ride-sharing service and the person providing electricity services to the end consumer shall determine and collect tax at the rate of five percent on the taxable value.’

Former Energy Minister and former Executive Director of the Electricity Authority, Kulman Ghising, has opposed the government’s decision to impose 5 percent VAT on electricity. He said that this decision is against the interests of the general consumer, the goal of energy transformation, and the national campaign to increase the use of clean energy produced domestically. ‘Since 2073, when we were in the NEA, we reduced the price of electricity by 25 percent to increase domestic consumption,’ he said, ‘but the government has imposed VAT when it should be emphasizing on increasing consumption.’

Ghising said that the government has tried to punish consumers by adding an additional tax burden when it should be encouraging the use of electricity for domestic purposes including cooking and heating water. ‘Most customers who consume more than 50 units of electricity per month are ordinary household consumers,’ he said, ‘In such a situation, the decision to impose tax will increase the monthly expenses of millions of families and make cooking more expensive.’