KATHMANDU: Finance Minister Dr. Swarnim Wagle has said the government will not reverse its decision to impose Value Added Tax (VAT) on electricity, but is exploring measures to ensure the additional burden does not fall on consumers.
Speaking at a post-budget discussion organized by the Nepal Association of Economic Journalists on Monday, Wagle said the government is considering several options, including adjusting electricity tariffs through the Electricity Regulatory Commission and increasing the number of free electricity units available to low-income households.
“That is the underlying objective from July 17. We are examining two or three options and expect to finalize them by then,” he said.
Wagle maintained that there would be no retreat from the VAT decision. “VAT will remain in place, but we are working to ensure that the burden is not passed on to end consumers,” he said.
He argued that concerns over the 5 percent VAT on electricity had been overstated. According to him, the effective tax burden is lower because the first 50 units of electricity are provided free of charge.
“How much does a household consuming 150 units of electricity pay? Even with a 5 percent VAT, the effective burden is less than 5 percent because 50 units are free. For a household consuming 150 units, the effective tax rate is around 3 percent,” Wagle said.
“A typical bill may be Rs 800 to Rs 900, yet the additional amount paid due to VAT is only around Rs 24. However, it is being portrayed as if a major burden has suddenly fallen on consumers.”
The Finance Minister also defended the government’s budget for the upcoming fiscal year, describing it as a foundation for economic reforms and a source of renewed hope for young people.
He said the budget aims to create opportunities for young graduates to earn up to Rs 100,000 per month within Nepal. Calling the income tax exemption of up to Rs 1 million a “revolutionary” measure, Wagle said it would increase liquidity in the market and help stimulate economic activity.
He also highlighted plans to reduce the tax rate on high-income earners from 39 percent by 10 percentage points to encourage savings and investment.
Addressing the issue of long-standing tax arrears, Wagle said the budget includes a provision allowing businesses to settle old dues by paying a 1 percent administrative fee, providing relief to thousands of entrepreneurs.
The minister further said the government plans to offer shares of Nepal Telecom to the general public, strengthen Rastriya Banijya Bank, and undertake comprehensive restructuring of Nepal Airlines Corporation and the Nepal Electricity Authority within the current fiscal year.
To finance large infrastructure projects, Wagle said the government would move beyond traditional borrowing mechanisms through the proposed Alternative Development Finance Bill. Under this framework, Nepal plans to mobilize resources by issuing offshore bonds, diaspora bonds, and thematic bonds.
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