Debate Over VAT Imposition on Electricity: Will It Challenge the Goal of Increasing Power Consumption?

Following the government’s announcement to impose value-added tax (VAT) on electricity consumers who use more than 50 units per month, various opinions have emerged regarding its impact. Some critics argue that this decision goes against consumer interests and may negatively affect the campaign to increase electricity consumption, while others contend that since VAT will not apply to those using up to 50 units, the overall consumption will not be significantly impacted.

During the presentation of the Fiscal Year 2083/84 budget, Finance Minister Swarnim Wagle informed the public about the provision to charge VAT at a concessional rate on electricity consumption exceeding 50 units per month for end-users. According to the Ministry of Finance spokesperson Amrit Lamsal, the government has proposed a 5 percent VAT on electricity consumption. He clarified: “For example, if a consumer uses 75 units, the first 50 units will be VAT-exempt, and the remaining 25 units will be subject to VAT.”

Former Energy Minister Kulman Ghising, who has led both the Ministry of Energy and the Nepal Electricity Authority, expressed concerns that the VAT decision poses an obstacle to achieving energy transformation goals. He stated, “This decision adversely affects consumer interests, the energy transition targets, and the national campaign to increase the use of locally produced clean energy.” Conversely, Nepal Electricity Authority spokesperson Rajan Dhakal noted, “Although some consumers may find the extra payment burdensome, this will not result in a reduction or stagnation in electricity consumption.”

According to spokesperson Dhakal, the Nepal Electricity Authority has approximately 5.8 million customers, of whom about 1.7 to 1.8 million consume less than 20 units of electricity monthly. However, the authority has not identified the exact number of domestic and industrial consumers using more than 50 units monthly. Former Energy Minister Ghising pointed out that most consumers exceeding 50 units are ordinary households. He emphasized, “In this scenario, the tax decision will increase the monthly expenses of millions of families and make household cooking more expensive.”