Summary: Prime Minister Balendra Shah announced the removal of a 3 percent equality fee imposed on the education and health sectors. Although he claimed to have consulted the Finance Minister, the Prime Minister made the announcement via social media without following the formal economic act procedures or obtaining a formal cabinet decision. Following intense public opposition, the government decided to withdraw the tax, and discussions are now underway to amend the VAT imposed on electricity as well.
5th Shrawan, Kathmandu – Until Tuesday morning, Finance Minister Swarnim Wagle was debating in favor of the 3 percent equality fee levied on education and health sectors. However, by afternoon, Prime Minister Balendra Shah suddenly posted on Facebook and X, declaring the fee removed. Although the Prime Minister mentioned consulting the Finance Minister prior to this decision, the abrupt implementation indicates that the taxes were repealed in violation of legal procedures.
This suggests that while the Prime Minister claimed to have consulted Finance Minister Wagle, the decision to reduce taxes was announced independently. There were reports of disagreements between the Prime Minister and Finance Minister regarding some budget policies. Since the budget presentation on 15th Jestha, the Finance Minister had defended the education, health, and electricity taxes for over a month and a half. With the Prime Minister suddenly removing two major taxes, it seems there was dissatisfaction with the Finance Minister.
Moreover, although the Prime Minister announced the removal on social media, the taxes have not been legally repealed as of yet. According to the Economic Act, taxes cannot be abolished simply via a Facebook post; a formal cabinet decision is required. The Ministry of Finance must submit a proposal to the cabinet when ministers are involved. According to two senior government sources, neither of these steps have been undertaken. “So far, the cabinet has not made any decision to reduce, withdraw, or exempt taxes,” said a senior government official.
If Finance Minister Wagle had agreed with this decision, the announcement could only have been made after the ministry presented a proposal and the cabinet approved it. Given the sensitivity of tax rates, it is customary not to publicize decisions prior to formal approval. However, without any initiative from the Ministry of Finance and without cabinet approval, the Prime Minister repeatedly announced via social media, which signals his dissatisfaction with the most senior minister.
On the other hand, there has been no apparent response from the Finance Minister following the Prime Minister’s announcement. While it is possible the decision might not be implemented, the Prime Minister has the authority to make decisions within the legal and constitutional framework in the prime ministerial system. He could also present proposals to the cabinet and decide accordingly.
As the Prime Minister stated on Facebook, the additional 3 percent tax imposed on private education and health services increased the burden on citizens, sparking public opposition. Economists also opposed these taxes. Senior economist Dr. Dilliraj Khanal expressed that by increasing tax compliance and offering tax relief, greater revenue could be generated, and taxing education, health, and electricity was inappropriate. Public opposition emerged, given that service fees paid by patients were included within the tax framework. Many argued it was wrong to tax educational expenses in a context where one in five students attends private schools. Dr. Khanal said, “The Prime Minister’s decision to revoke the tax as per public expectation was appropriate, and I welcome it.”
Although the budget presented to Parliament on 15th Jestha included provisions for the education and health equality fee, implementation only started on 1st Shrawan. Upon the onset of protests, the Prime Minister decided to withdraw the tax. He stated, “This government is a people-centric government based on public trust and expectations, so the protested tax was withdrawn.”
The purpose of the tax was to provide quality education and health services to citizens in remote areas, support Dalit, marginalized, and impoverished children, and expand health insurance coverage. It also aimed to establish a structured economy by broadening the tax base. However, following public opposition, the government has taken the matter seriously and is committed to moving forward while listening to citizen demands, the Prime Minister stated on social media.
But why was this decision, purportedly in response to public expectations, abruptly made without following proper procedures? What is the legally required process for repealing taxes and modifying rates established by the economic bill passed by Parliament?
Worldwide, tax rates are considered a government prerogative. Governments can modify tax rates approved by Parliament, but must follow legally established procedures to inform Parliament. Under Section 18 of the Economic Act in Nepal, the cabinet may reduce, increase, or exempt taxes, but only after receiving a proposal from the Ministry of Finance. The cabinet then makes its decision based on the proposal.
However, regarding the repeal of the education and health equality fee, sources confirm that no proposal has been submitted, nor has any cabinet decision been made. Any change to tax rates or exemptions must then be presented to the federal Parliament, and information published in the Nepal Gazette.
According to Section 5 of the Economic Bill, any details of reduced, increased, or exempted tax rates must be submitted annually by the Ministry of Finance to the federal Parliament. Section 6 mandates publication in the Nepal Gazette.
Changes to the VAT imposed on electricity are also under consideration. Like the education and health equality fee, there has been strong opposition against the 5 and 13 percent VAT on electricity. Finance Minister Wagle imposed VAT on electricity used by both rich and poor after granting a 10 percent income tax exemption to the highest income group. Due to rising opposition, discussions are ongoing between the Ministry of Finance and the Inland Revenue Department regarding VAT modification.
According to ministry sources, “Currently, electricity consumption below 50 units is exempt from VAT. Discussions are underway to increase this exemption to 150 units or remove VAT entirely, but no decision has been reached yet.”
