Kathmandu. The government has decided to withdraw the Value Added Tax (VAT) imposed on electricity services.

Minister for Energy, Water Resources and Irrigation Biraj Bhakta Shrestha, who has been expressing dissatisfaction over the imposition of VAT on electricity without consulting at the time of encouraging electricity consumption, has demanded that Prime Minister Balendra Shah, Rastriya Swatantra Party President Rabi Lamichhane and Finance Minister Dr. Swarnim Wagle are ready to reconsider the decision.

Prime Minister Shah and Rastriya Swatantra Party (RSP) President Lamichhane have directed Finance Minister Wagle to take the proposal to the Council of Ministers.

Minister Shrestha had expressed his displeasure in the cabinet after the budget for the current fiscal year 2083/84 BS made a provision of 5 percent VAT on the sale of electricity service to the end consumer and 13 percent in the case of other consumers.

He had repeatedly drawn the attention of Prime Minister Shah, party president Lamichhane and Finance Minister Wagle to reconsider that it was not appropriate to impose VAT on electricity now. The decision to impose VAT on electricity was also criticized by the public. After the continuous attention of Minister Shrestha, the government has come to the conclusion to review and remove VAT on electricity service within two months.

After the Prime Minister and the party president agreed, Energy Minister Shrestha and Finance Minister Wagle had held separate discussions to remove VAT and an agreement in principle was reached to remove the VAT on electricity. Now the Ministry of Finance will complete the necessary process and take the proposal to the cabinet. After the decision of the cabinet, the provision of not VAT on electricity tariff will be implemented.

The issue of review has been raised saying that the increase in tax on electricity may affect the government policy of expansion of consumption. The Ministry of Energy has been of the view that the burden of tax on electricity should be reduced as part of the strategy to increase electricity consumption within the country. The ministry has stressed that the expansion of domestic consumption should be given priority as the production capacity is increasing in Nepal and the demand for electricity generation is more than the demand during the rainy season.

As another way to increase electricity consumption, the Nepal Electricity Authority (NEA) is also studying the possibility of seasonal electricity tariff with the aim of making maximum use of the surplus electricity available during the rainy season in the industrial sector. It is expected that the policy initiative to remove VAT and increase electricity consumption in the industry will help in the promotion of industrial activities along with the expansion of the internal market of electricity produced.

In the current fiscal year’s budget, Finance Minister Wagle had proposed to levy VAT of 5 percent for domestic consumers and 13 percent for industrial and other non-domestic consumers.