The government is going to revise the 5 percent value-added tax (VAT) imposed on consumers consuming more than 50 units of electricity through the budget for the upcoming fiscal year. The government is preparing to revise the VAT and implement the new rate from Shrawan. 

In the House of Representatives meeting on Friday, Finance Minister Swarnim Wagle said that a study is being conducted to impose the tax only above 100 or 150 units. “Currently, it has been said that up to 50 units will not have to be paid. A study is being conducted to impose the tax only above 100 units or 150 units,” he said, “We will go into it before imposing the tax from Shrawan.” 

Since the exemption has been given up to 50 percent, only 3/4 percent will be implemented, he said. While presenting the budget for the upcoming fiscal year on 15 Jestha, Finance Minister Wagle had imposed a 5 percent value-added tax (VAT) on electricity and implemented a multi-rate system. In the Finance Bill, 2083, the government had first amended the VAT Act and initially made provision for VAT not to be levied on electricity consumed for household purposes up to 50 units per consumer. This provision was mentioned in the VAT Act, which provided that ‘electricity up to 50 units per consumer consumed for domestic purposes’ would not be subject to VAT, but it would be levied on anything in excess of that.

According to this provision, VAT was levied on sales from businesses trading electricity to businesses trading electricity (for example, when a promoter sells to the Nepal Electricity Authority). Later, the provision was amended to exempt electricity traders and households from VAT for up to 50 units. ‘Electricity sold from businesses trading electricity to businesses trading electricity and electricity up to 50 units per consumer consumed for domestic purposes’ is mentioned in the latest revised Economic Bill. 

The latest amendment exempts electricity traders from VAT, but VAT is levied on electricity consumed in excess of 50 units per consumer consumed per month. 

The former Energy Minister and government officials had criticized the government’s provision, saying that electricity consumption could decrease after the government’s provision. Mohan Dangi, president of the Independent Power Producers Association of Nepal (IPPAN), says that the risk of a decrease in 'electricity consumption' imposed by the Nepal Electricity Authority, which is not available to the private sector, has increased. He says that they have 'reservations' because electricity consumption will decrease instead of increasing. 

At a press conference organized by the Ministry of Finance immediately after the budget, Finance Minister Wagle had commented that only 1.4 million customers will be subject to VAT under the new system. 'According to our estimate, there are about 1.2 million households in Nepal consuming 51 to 150 units of electricity. 5 percent VAT will only cost them an additional Rs 24 per month. There are only 200,000 households consuming 151 to 250 units of electricity, and they use facilities like AC and EV fast charge. VAT will only cost them an additional Rs 25 to 102,' Finance Minister Wagle had said at a press conference. He had also said in another program that if they are unable to pay their electricity bills due to the imposition of VAT, it can be reviewed. 

Although the Finance Minister has commented that 1.4 million customers will be subject to VAT, around 2.6 million household customers of the Nepal Electricity Authority consume more than 50 units of electricity per month. The Authority says that there are 1.998 million customers consuming up to 20 units, 421 thousand customers consuming 21 to 30 units, and 615 thousand customers consuming 31 to 50 units. There are 1.75 million customers consuming 51 to 100 units, 1.089 thousand customers consuming 101 to 250 units, and 442 thousand customers consuming more than 250 units. These are only household customers. 

On the other hand, the Ministry of Finance has not yet clarified who will be charged the VAT imposed. The Department of Internal Revenue has stated that it is preparing to formulate a procedure for the implementation of the multi-rate VAT. Since the new system will be implemented from Shrawan 2083, the department says that it will mention this in the procedure. 

The department understands that household customers will be charged 5 percent value-added tax (VAT) and the remaining customers will be charged 13 percent. Domestic customers will be charged 5 percent VAT and the rest will be charged 13 percent VAT, said Shiva Sharma, Director of the Internal Revenue Department. If 13 percent VAT is imposed on industrial businesses, the end consumer will also be affected. In addition, domestic goods will become more expensive, discouraging production.

 However, Sharma said that the department will clarify the final explanation after discussing with the Electricity Authority. He said that since it will be implemented only from Shrawan, the authority will be consulted on this matter. According to the authority, there are customers including industrial, commercial, non-commercial, irrigation, drinking water, transportation, religious and spiritual places, street lights, temporary connections, non-domestic, entertainment businesses.

Section 13 of the Electricity Regulatory Commission Act, 2074 BS, provides for determining tariffs and regulating the purchase and sale of electricity. It is mentioned in Sub-section 1, ‘A’ of Section 13 of the Act that the electricity tariff shall be determined by considering the operating expenses, depreciation rate, payment of principal and interest, maintenance expenses, construction, reconstruction, rehabilitation of electricity infrastructure and annual returns received for shares, and the electricity purchase agreement and the tariff to be paid by the consumer on that basis.

The 140th meeting of the Commission held on 8 Kartik 2078 BS had decided to determine the electricity consumer tariff rate of the Nepal Electricity Authority (including consumers of community wholesale consumer organizations) to be applicable for the consumption of Mangsir and billing from Poush onwards. Therefore, the new tariff rate or VAT will also be implemented only after the decision of the Commission. However, the Commission is without leadership after being automatically relieved of duty in accordance with the ‘Special Provisions on the Resignation of Public Officials Ordinance 2083’ issued by the government.