FNCCI urges Nepal government to withdraw electricity VAT

The Federation of Nepalese Chambers of Commerce and Industry (FNCCI) has urged the government to withdraw the value-added tax (VAT) imposed on electricity tariffs, warning that the measure is driving up production costs. The tax, introduced in the 2026/27 fiscal year, applies a 5 percent VAT on domestic consumption above 50 units, while industrial and commercial consumers face a 13 percent rate.

The FNCCI stated that electricity is a fundamental input for trade, tourism, and industrial production. The federation noted that the tax places significant pressure on working capital, energy-intensive industries, small and medium-sized enterprises, and hotels. While businesses can theoretically claim input tax credits, many struggle to adjust for the VAT immediately due to complex refund procedures and the nature of their transactions.

Beyond the tax, the FNCCI also called for a more reliable electricity supply to prevent production losses caused by voltage fluctuations and outages. The federation warned that increased business costs could eventually be passed on to consumers, contributing to broader price pressures. Government officials, including Energy Minister Biraj Bhakta Shrestha and Finance Minister Swarnim Wagle, have reportedly held discussions regarding the potential removal of the tax.