Kathmandu. The Morang Chamber of Industries has urged the government to withdraw the 13 percent Value Added Tax (VAT) imposed on electricity tariff from July 17, saying it would have a negative impact on the entire industrial environment.

The organization believes that the provision of 13 percent VAT on all electricity bills of industrial and non-domestic consumers will have an adverse impact on the working capital, cash flow, competitiveness and overall investment-friendly environment of the industries.

According to the organization, the industries have to pay an additional 13 percent of the electricity bill immediately every month. The amount can be adjusted or returned later, but before that the cash of the industries will be withheld, which creates unnecessary pressure on the working capital. This arrangement is likely to be an additional burden for industries that are currently facing the challenges of delays in collecting money from customers, lack of working capital and high financial costs.

Although there is a provision to provide input VAT credit in theory, in practice the VAT refund process is very complicated, delayed and the amount is withheld for a long time due to the situation of government funds. This creates a double burden of having to pay interest by taking a current capital loan for the same amount while the amount of the industries remains idle in the state treasury.

In particular, high-energy-consuming industries, including the steel industry, will be the most affected by this provision. In particular, high-energy-consuming industries, including the steel industry, will be the most affected by this arrangement, the organization said. For example, an industry that consumes 17 million units of electricity per month has to pay an average of Rs 8 per unit in energy charges per month.

In this case, about Rs 1,76,80,000 will be withheld every month as Value Added Tax (VAT) of 13 percent. In this way, only about Rs. It is estimated that 21 crore 21 lakh 60 thousand VAT amount will be withheld. According to the organization, this will put a direct pressure on the cash flow of industries, increase the operating cost and affect production and competitiveness.

According to the data, about Rs 1.77 crore of the same industry is frozen every month and more than Rs 21 crore annually before the reimbursement is done. In the iron industry and other energy-consuming sectors, the total working capital of this type of freeze reaches billions of rupees.

The organization has said that export-oriented industries will be affected even more. Since the export is done at zero VAT rate, the VAT paid on electricity cannot be adjusted and has to depend on the refund process. However, due to the delay in the return process, the VAT paid on electricity becomes a permanent part of the production cost and will adversely affect the competitiveness of Nepali products.

Similarly, small and cottage industries that are not registered with VAT will not be able to claim input VAT credit, so the added VAT on electricity will further weaken their competitiveness by making it a direct and permanent cost of production.

Since electricity is the basic means of production of most goods and services, imposition of VAT on it will increase the cost of production, which will have a direct impact on the market price and ultimately the consumers will have to bear the additional burden of inflation.

This provision is in conflict with the government’s energy and industrialization policy. The organization believes that imposing VAT on industrial electricity would be against the objective of the policy at a time when the government has adopted a policy of maximizing the utilization of domestic hydropower, increasing electricity consumption and reducing the use of imported fuel.

In addition, the increased VAT on electricity amid high financing costs, challenges in credit flow, stringent banking standards and a growing liquidity crisis in the industry will create additional pressure on cash flow, increasing the financial risk of the industries and also have a negative impact on loan recovery.

Nanda Kishore Rathi, president of the association, urged the government to reconsider the provision of levying VAT on electricity tariff for the industrial development, investment promotion and to protect the competitive capacity of domestic production.

He urged the government to withdraw the provision of VAT on electricity for the industrial sector as electricity is an important comparative advantage for domestic industries and businesses, saying its maximum utilization should be encouraged.