With the start of the new fiscal year, new taxes ranging from income, education, health to electricity and ride-sharing have come into effect. Various tax arrangements, including these, introduced in the budget released by the government on 15 Jestha, have come into effect from 1 Shrawan. Earlier, many tax rates, including customs, have already come into effect from 12 midnight on 15 Jestha.

Accordingly, now household customers will have to pay 5 percent Value Added Tax (VAT) when consuming more than 50 units of electricity. Customers other than households (businesses) will have to pay 13 percent VAT, the Inland Revenue Department has stated. The department has issued the Directive on Collection of Value Added Tax on Electricity Services, 2083. ‘Until last year, electricity was on the list of VAT exemptions in Schedule One of the VAT Act.’ Electricity was removed from the list of VAT exemptions in this year’s budget. After that, 13 percent VAT was levied on electricity,' said Keshav Rajbanshi, Information Officer of the Inland Revenue Department, 'Among them, VAT exemption was imposed on household consumption up to 50 units and 5 percent VAT on more than that. However, 13 percent VAT has been levied on commercial consumption.'

The government has given VAT exemption on electricity consumption up to 50 units per month to provide relief to the general public or household customers. But tax is levied as soon as 50 units are consumed. Except for natural persons consuming electricity for household purposes, others do not get the 50 unit exemption. 13 percent VAT will be levied on the total price of all units consumed.

If a household customer consumes only 45 units of electricity in Shrawan, he does not have to pay VAT. But if he consumes 60 units of electricity in Bhadra, he does not have to pay VAT for 50 units. Only 10 units will be paid. On the other hand, if a district administration office or other commercial area consumes 100 units, those offices will have to pay an additional 13 percent VAT.

When a business dealing in electricity sells electricity to another business dealing in the same electricity, VAT will not be charged. Therefore, now the body issuing VAT bills will also have to be registered for VAT.

The authority has been registered for VAT and the billing system has also been updated, said Dirghayu Kumar Shrestha, Acting Executive Director of Nepal Electricity Authority. “The government has a policy of charging 5 percent VAT to household customers and 13 percent to the rest, and we have also adjusted the billing system accordingly,” he said. Shrestha said that since the authority has been registered for VAT, it will also get a VAT refund on materials purchased by the authority.

In the Finance Bill, 2083, the government first amended the VAT Act and initially made provision for VAT exemption for electricity consumed for household purposes up to 50 units per customer. This provision was mentioned in the VAT Act, which provides that ‘electricity up to 50 units per consumer consumed for domestic purposes’ is exempt from VAT, but VAT is 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 bill amended the provision to exempt VAT from sales to businesses trading electricity and up to 50 units for domestic purposes.

‘Electricity sold by businesses trading electricity to businesses trading electricity and up to 50 units per consumer consumed for domestic purposes’ is mentioned in the latest revised economic bill. The latest amendment provides that VAT is exempt from VAT on businesses trading electricity but VAT is levied on electricity consumed in excess of 50 units per consumer per month.

Approximately 2.6 million household customers of the Authority consume more than 50 units of electricity per month. The NEA 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 million customers consuming 111 to 250 units, and 442 thousand customers consuming more than 250 units. These are only household customers.

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 of Section 13 of the said Act that the electricity tariff is determined by considering the operating expenses, depreciation rate, payment of principal and interest, maintenance expenses, construction, reconstruction, rehabilitation of electricity infrastructure, and annual returns on shares, as well as the power purchase agreement, and the tariff to be paid by the consumer based on that. Stakeholders say that since the electricity tariff is determined accordingly, VAT cannot be levied. But the government has been claiming that a 5 percent VAT has been imposed on electricity to increase investment in energy infrastructure.

Finance Minister Swarnim Wagle had said in the House of Representatives meeting held on Asad 20 that a study is being conducted to impose a tax only on units above 100 or 150. ‘Currently, it has been said that up to 50 units will not have to be paid. A study is being conducted to impose a tax only on units above 100 or 150,’ he had said, ‘We will go into it before imposing the tax from Shrawan.’

However, the directive issued by the department has made the same provision as per the Economic Bill. Even though President Ram Chandra Poudel has certified the Economic Bill, it has not been published in the Gazette.

Through the Economic Bill, it was announced that a 3 percent tax would be levied on students studying in private educational institutions (schools/colleges) and patients receiving treatment in private hospitals. A parity fee will be levied on education and health from Shrawan. When the patient pays to the hospital, an additional 3 percent health parity fee will also be paid on the total amount (bill).

‘Currently, if a hospital takes services from a pathology lab, there is a question of whether tax is levied on it or not. It is not levied on such cases. It is levied only when the patient pays. If a patient pays the bill to the hospital, it is levied. If a patient goes to the pathology lab for services, 3 percent is levied,’ said Prakash Poudel, director of the department, ‘Tax is levied only when the patient pays directly to the hospital or pathology lab. The transaction between the hospital and pathology is commercial. That is why it is not levied.’

A three percent parity fee will be levied on the fees paid by students studying in private educational institutions (universities/schools/colleges). The department has stated that 3 percent will be levied on the bills issued by the school in the name of a student. But now, questions are being raised about what will happen when the entire year’s fees have been paid in Baisakh, Poudel said.

‘We have implemented the parity fee since Shrawan, so the fee since Shrawan should be paid to the government,’ Poudel said, ‘When the fee was already paid in Baisakh, the school should either send an additional 3 percent bill or say that we have already added 3 percent to the amount paid earlier.’

Private schools will have to collect a 3 percent education parity fee on all types of fees charged from students, including admission fees, monthly fees, examination fees. When Baburam Bhattarai was the Finance Minister, a 1 percent tax was imposed on private educational institutions and before that, a 1.5 percent tax was imposed on private individuals for contributions to the Rural Education Fund, but it was not implemented.

Similarly, for the first time, Value Added Tax (VAT) has been implemented on ride-sharing services. A 5 percent VAT will be levied on the fare paid by the user of the ride-sharing service to the rider. However, the ride-sharing platform will charge 13 percent VAT on the service fee charged by the rider. While 13 percent was already applicable, 5 percent VAT has been imposed for the first time.

The department has also stated that there is no provision for tax credit or VAT refund in the area where 5 percent VAT is levied on users of ride-sharing services. The department has also said that riders must be registered with a permanent account number (PAN).

Customs rates, excise duties, domestic product promotion and protection fee (DPF) and clean infrastructure investment fee, green tax, etc. have been implemented since 15 Jestha.

The government has implemented a provision through the budget of the current fiscal year that the profit tax levied on the sale of securities of listed companies will be the final one. In addition, now citizens have implemented a provision to pay 7.5 percent capital gains tax when selling shares for more than one year and 10 percent capital gains tax when selling shares for less than one year. Earlier, the limit was 7.5 percent for less than a year and 5 percent for more than a year.