Kathmandu, June 20: The government has retreated from its decision to impose a 5 percent tax on household electricity consumption exceeding 50 units. The move appears to have been prompted by strong public opposition.
While presenting the budget for the new fiscal year on Jestha 15, Finance Minister Swarnim Wagle had introduced a multi-tier electricity tariff system and imposed a 5 percent Value Added Tax (VAT) on electricity. Under the Economic Bill 2083, the government had initially amended the VAT Act to exempt the first 50 units of electricity consumed monthly by each household customer from VAT, while consumption above that threshold would be taxed. This provision was incorporated into the VAT Act.
The provision was later revised so that VAT would not apply to electricity transactions between electricity-trading businesses or to household consumption of up to 50 units per month. The amended Economic Bill states: “Electricity sold by an electricity-trading business to another electricity-trading business, and electricity consumed for household purposes up to 50 units per customer per month, shall be exempt from VAT.”
Under the latest amendment, VAT will not be levied on electricity sold between electricity-trading businesses, but household consumers using more than 50 units per month will still be subject to VAT.
Speaking in Parliament on Friday, Finance Minister Wagle said the government is studying the possibility of imposing the tax only on consumption exceeding 100 or 150 units per month.
“At present, consumers using up to 50 units are exempt from payment. We are considering imposing the tax only on consumption above 100 or 150 units,” he said during a meeting of the House of Representatives. “We will finalize this before implementing the tax from the month of Shrawan.”
He also noted that, because of discounts of up to 50 percent, the effective implementation rate would be only around 3–4 percent.
After the government announced the VAT proposal, a report stating that more than 2.6 million household consumers would be affected if VAT were imposed on electricity consumption above 50 units. According to the Nepal Electricity Authority (NEA), around 2.6 million customers consume more than 50 units of electricity per month.
NEA data show that approximately 1.998 million customers consume up to 20 units per month, 421,000 consume between 21 and 30 units, and 615,000 consume between 31 and 50 units.
Likewise, around 1.075 million customers consume between 51 and 100 units per month, 1.089 million consume between 101 and 250 units, and 442,000 consume more than 250 units. These figures represent household consumers only.
Electricity tariffs can only be implemented after approval by the Electricity Regulatory Commission. However, the commission is currently without leadership after its chairperson and members were automatically removed under the government’s Special Ordinance on the Removal of Public Officials, 2083. The process of appointing new commissioners is currently underway.
According to the Ministry of Energy, ten candidates have applied for the position of chairperson, and presentations of professional work plans and interviews for the candidates are scheduled to begin on Saturday.
Mohan Dangi, President of the Independent Power Producers’ Association Nepal (IPPAN), said that although independent power producers had requested the imposition of VAT, the current arrangement benefits only the Nepal Electricity Authority and not the private sector. He warned that the measure could reduce electricity consumption rather than increase it.
“Instead of encouraging higher electricity consumption, it may actually discourage it,” Dangi said, adding that IPPAN has reservations about the policy.
People’s News Monitoring Service.
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