Govt preparing to raise VAT exemption on electricity consumption

KATHMANDU: The government is preparing to revise its proposal to impose VAT on electricity consumption by raising the exemption threshold to 150 units from the earlier proposed 50 units.

Ministry for Finance Dr Swarnim Wagle has said that the government was studying the possibility of increasing the threshold.

Responding to concerns raised by lawmakers during discussion on the Economic Bill in the House of Representatives on Friday, Minister Wagle said the government was studying the possibility of imposing 5% VAT only on consumers using around 100-150 units or more electricity.

The government introduced the provision of enforcing VAT on electricity consumption through the budget for the upcoming fiscal year 2026/27, which begins on July 17.

However, the decision to tax consumers of electricity generated locally immediately drew criticism. Prime Minister Balendra Shah earlier tried to defend the decision, stating that billions of rupees in investment would be required to upgrade substations and transmission infrastructure to facilitate a shift from LPG to electric induction cooking.

Minister Wagle had also said that the government needed funds to build energy infrastructure. In a post-budget press briefing at the Ministry of Finance, Wagle said the decision was driven by the need to mobilize over Rs 85 billion for energy infrastructure development.

The proposal to tax electricity consumption has also raised concerns as it runs contrary to the government’s long-term goal of increasing per capita electricity consumption from around 450 units to 1,500 units within a decade.