Burden on Public as Oil Corporation Receives Tax Relief Gift Amid Fuel Price Hike

March 27, Kathmandu — Despite the government’s effort to ease the burden on consumers by granting a 50 percent tax reduction on petroleum products, Nepal Oil Corporation (NOC) sharply increased fuel prices within two days of this decision.

On March 24, Federal Affairs and General Administration Minister Pratibha Rawal announced the cabinet’s decision, chaired by Prime Minister Balendra Shah, to grant a 50 percent tax concession on petroleum products.

“The government is transparent, does not hide facts, and understands the people’s hardships,” the minister stated. “A 50 percent cut on the highest taxes is expected to help control prices.”

Consumers had expected relief in fuel prices following the government’s announcement.

However, contrary to these hopes, the corporation implemented a hefty fuel price hike effective midnight, increasing the burden of inflation on the public.

Consumers expressed anger, saying that the government’s move—intended to provide relief during a crisis—has instead exacerbated inflation.

According to the new rates, petrol has been raised by NPR 17 per litre, and diesel/kerosene by NPR 25 per litre. Petrol is now priced at NPR 219 per litre, while diesel and kerosene stand at NPR 207 per litre.

LPG gas prices rose by NPR 100 per cylinder, reaching NPR 2,010 per cooking gas cylinder, and domestic aviation fuel increased by NPR 6 to NPR 257 per litre.

A comparison with Indian market prices reveals a significant gap: petrol in New Delhi costs NPR 94.77 per litre and diesel NPR 87.67, whereas in Nepal, petrol is NPR 151.63 and diesel NPR 140.27 per litre.

This indicates that petrol is approximately NPR 67.37 and diesel NPR 66.73 more expensive in Nepal than in India.

NOC Spokesperson Manoj Thakur noted that comparing Nepal’s prices with India’s internal market is unusual, as India benefits from domestic refineries, which bring down oil prices, whereas Nepal relies on imports, incurring higher costs.

Thakur explained that the corporation pays Indian Oil Corporation (IOC) NPR 153.78 per litre for petrol and NPR 242.49 for diesel. After customs, taxes, transport fees, administrative expenses, and dealer commissions, the overall cost reaches approximately NPR 221.32 for petrol and NPR 294.99 for diesel.

A NOC statement highlighted that despite a 50 percent reduction in customs and infrastructure taxes, losses will not decrease due to rising international market prices. Even after tax adjustments, the corporation faces losses of NPR 16.65 per litre for petrol, NPR 109.50 for diesel, and NPR 416 per LPG cylinder, projecting a loss of NPR 1.021 billion in 15 days.

Due to this, the corporation said it was compelled to increase prices.

Though the price hike means a monthly loss of over NPR 700 million, the corporation has urged consumers to reduce fuel usage.

Nepal Oil Corporation is a fully government-owned entity. The government’s 50 percent tax relief aimed to strengthen the corporation’s financial position. Overall, the state neither profits nor makes losses, but the burden is shifted to consumers.

The corporation follows an automatic pricing system that increases prices with international market rises. However, after the government reduced taxes, the corporation cannot lower prices, citing previous outstanding losses. This creates a perceived injustice in the process of price hikes and cuts.

Consumers raise concerns that this “automatic” pricing system only works when prices increase, while reductions are manually constrained.

Statement from NOC Executive Director Bhatt

Dr. Chandika Prasad Bhatt, Executive Director of Nepal Oil Corporation, claimed the tax relief prevented a larger price surge and provided some relief to consumers.

“Without the tax relief, diesel prices would have increased by NPR 70 to 75 per litre. Now, the increase is limited to NPR 25, which is relief for consumers,” Bhatt said.

He added that the corporation still faces a loss of approximately NPR 95 per litre on diesel and is currently in a financial crisis. The corporation plans to invest NPR 13 to 14 billion within a month to manage the deficit.

Consumer Rights Activist Madhav Timilsina’s Criticism

Consumer rights activist Madhav Timilsina described the government and corporation’s actions as a “big game and malpractice.” He accused them of creating a facade of tax relief while actually squeezing the public’s finances.

“While crude oil prices have declined in the international market, the corporation increased fuel prices at midnight using outdated and costly price lists, which is malpractice,” he stated.

Timilsina noted that although the corporation distributes bonuses to employees when profitable, it is unfair to shift all financial burdens to consumers during losses.

He questioned why the public should bear the cost of irresponsible expenses like the state purchasing expensive land for the corporation while private sector actors handle LPG production and transport, and the corporation merely manages paperwork.

Calls for Example-Setting by Officials Amid Fuel Usage Appeals

Timilsina said it is inappropriate to urge consumers to reduce fuel usage while ministry secretaries and corporation officials comfortably use vehicles alone.

He highlighted that 20 directors in the corporation demand 20 vehicles and employees avoid public transport, underlining the need for permanent plans prioritizing consumer interest.

Timilsina criticized current policies and urged the government to implement rationing mechanisms during crises, promote electric vehicles, and improve public transport instead of mere price hikes.

He also accused officials from the Ministry of Industry, Commerce and Supply, and the Competition Market Board of neglecting consumer protection laws, urging the Prime Minister’s Office to intervene and revoke illegal price increases.

Experts say the corporation’s price hikes reflect disregard for consumers and a tendency to pass past losses onto them.

Former Secretary and Public Administration Specialist Bimal Prasad Wagle commented that lack of transparency in the corporation’s pricing process consistently harms consumers.

“Normally, fuel prices should be adjusted every 15 days based on international price lists, but the corporation often fails to reduce prices citing old losses.”

He noted that the corporation suffered a loss of NPR 3.2 billion previously, which took about 18-24 months to recover, and such losses should not be borne by consumers.

He expressed concern that since the state cannot directly absorb such significant losses, the corporation must balance accounts through revenue, resulting in consumers carrying a heavy burden.

Reducing Government Expenses as a Key Solution

Wagle argued that increasing fuel prices will not solve usage reduction issues; it will instead raise transportation costs and overall inflation, negatively impacting economic activities.

He emphasized that the real solution lies in cutting government expenditures, particularly converting government vehicles with red number plates to white plates to curb unnecessary use.

Further, he suggested removing the fuel coupon system—which is prone to misuse—and providing cash allowances instead to reduce wasteful consumption and help control demand.

Recommendation to Adopt Cross-Subsidy System

Wagle proposed implementing a cross-subsidy system in petroleum pricing management, suggesting that the revenue collected from petrol and aviation fuel users—typically wealthier groups—be used to subsidize diesel and kerosene, which are heavily consumed by the public.

He stated, “Those who use petrol and aviation fuel are comparatively affluent. Collecting more revenue from them to subsidize diesel will lower transportation costs and help reduce inflation.”

Wagle stressed that before urging consumers to restrict consumption, government agencies must practice austerity to set an example.

Government’s Decision Called ‘Immature and Unreliable’ by Economist Dr. Khanal

Economist Dr. Dilliraj Khanal said that the government’s decision to cut taxes was undermined when prices were increased just days later, casting doubt on the government’s credibility.

He described the decision as “immature and unreliable,” warning it jeopardizes the government’s reputation. The contradictory act of reducing taxes while the corporation hikes prices makes the entire process appear unsuccessful.

“If a price hike was planned for the next day, why reduce taxes today? This has led to a serious trust deficit in the decision-making process,” he commented.

Dr. Khanal emphasized that since the Nepal Oil Corporation is fully government-owned, it must bear some losses during crises rather than immediately shifting the burden to consumers.

“While the corporation distributes bonuses arbitrarily in profitable times, passing losses abruptly to consumers raises concerns about social responsibility.”

Though it may take time for Nepal to feel the impact of falling international fuel prices, Dr. Khanal concluded that the overall decision-making process remains immature.

Ultimately, despite the tax cuts being positive, their benefit is nullified when followed by price increases, he noted.