Nepal government moves to scrap VAT on electricity tariffs

The government of Nepal is preparing to scrap the Value Added Tax (VAT) on electricity tariffs, following an agreement in principle between Energy Minister Biraj Bhakta Shrestha and Finance Minister Swarnim Wagle. The move comes two months after the tax was introduced for the current fiscal year to fund electricity transmission infrastructure.

The tax structure previously imposed a 5 percent VAT on household consumption exceeding 50 units per month, while industrial and commercial users were charged 13 percent. The levy faced significant criticism from industrialists, who argued it increased production costs, and from households facing rising daily expenses and cooking gas shortages.

Once the Cabinet formally approves the decision, the government plans to reconcile the VAT collected since July by adjusting upcoming electricity bills. The Prime Minister has reportedly expressed support for the reversal.