Nepal electricity VAT removal efforts

The government of Nepal is moving to scrap the Value Added Tax (VAT) on electricity tariffs following significant criticism from households and industry leaders. The tax, introduced for the 2026/27 fiscal year to fund transmission infrastructure, applied a 5 percent rate on domestic consumption exceeding 50 units per month and a 13 percent rate for industrial and commercial users.

The Federation of Nepalese Chambers of Commerce and Industry (FNCCI) urged the government to withdraw the tax, warning that it increases production costs and places pressure on working capital for energy-intensive industries, small and medium-sized enterprises, and the tourism sector. The FNCCI noted that while businesses can theoretically claim input tax credits, complex refund procedures make immediate adjustments difficult.

Energy Minister Biraj Bhakta Shrestha and Finance Minister Swarnim Wagle have reached an agreement in principle to remove the levy. Once the Cabinet formally approves the decision, the government intends to reconcile the VAT collected since July by adjusting upcoming electricity bills.