KATHMANDU: The Federation of Nepalese Chambers of Commerce and Industry (FNCCI) has urged the government to withdraw the value added tax (VAT) imposed on electricity tariff from the current fiscal year 2083/84.

According to the Federation, the imposition of additional tax on electricity is the basic infrastructure of industrial production, trade and tourism sector will have a direct impact on the cost of production, operating cost, cash flow and overall business competitiveness.

The Federation of Nepalese Chambers of Commerce and Industry (FNCCI) has received complaints that the increase in tax has increased the cost of small and medium enterprises (SMEs) and hotels and tourism businesses.

Entrepreneurs have complained that even though there is a provision for input tax credit as per the law, it is not possible for all businesses to adjust the VAT paid on electricity immediately or fully due to the tax adjustment and refund process and the nature of the transaction.

This has created pressure on the operating capital and has also affected new investment, industry expansion and job creation. Such a provision has hindered the industry from expanding its business and creating jobs. It also creates a situation where the burden will pass on to the consumers and there will be additional pressure on the overall price increase.

At a time when industrialization has to be accelerated through internal consumption of electricity, import substitution and export promotion, the policy of increasing the energy cost has added challenges to the investment and production expansion of the private sector. The federation has also urged the industry to ensure regular, quality and reliable power supply and minimize the damage to production and machinery caused by voltage fluctuations, sudden power interruptions and other technical problems.

The federation requests the government to review the provision of VAT on electricity and hold extensive consultations with the private sector and make the tax adjustment and refund process simple, transparent and time-bound. The federation urges the government to refund the VAT levied on electricity considering electricity as a basic infrastructure for industrial production, tourism development, employment generation and economic growth, not just as a means of revenue collection.