Electricity Bills To Rise From Friday As Nepal Imposes 5% And 13% VAT On Power Consumption

Electricity consumers across Nepal are set to face higher power bills from Shrawan 1 after the government imposes a new Value Added Tax policy on electricity consumption.

Under the new system, household consumers using more than 50 units of electricity per month will pay 5 percent VAT on the units exceeding that threshold, while commercial, industrial, institutional and most other electricity users will be charged 13 percent VAT.

The Inland Revenue Department (IRD) says the necessary billing systems have been completed and the policy will take effect from the start of the new fiscal year.

How The New VAT System Works

According to the new arrangement:

• Households consuming up to 50 units per month will continue to pay no VAT.

• Household users consuming more than 50 units will pay 5% VAT only on the additional units.

• Commercial, industrial, government offices, schools, hospitals and other non-household consumers will pay 13% VAT on electricity bills.

For example, if a household consumes 60 units, VAT will be charged only on the 10 units above the 50-unit threshold.

Which Consumers Will Pay 13% VAT?

The Inland Revenue Department has defined household users as the only "final consumers" eligible for the 5 percent VAT rate.

As a result, the following users will pay 13 percent VAT:

• Industries and factories

• Commercial businesses

• Hotels

• Schools and universities

• Hospitals

• Government offices

• Public institutions

• Drinking water projects

• Irrigation systems

• Street lighting

• Electric vehicle charging stations

• Public transportation electricity use

• Religious and spiritual institutions

Officials say electricity used for commercial production or service delivery does not qualify for the reduced VAT rate.

Nepal Electricity Authority Ready For New Billing

The Nepal Electricity Authority (NEA) says its billing system has already been updated to apply the new tax structure from Shrawan 1.

Officials acknowledged that some technical issues may arise during the initial rollout but said they will be resolved as implementation progresses.

Experts Question Different VAT Rates

Tax and energy experts have questioned whether charging 5 percent VAT to some consumers and 13 percent to others, is legally consistent.

According to former Nepal Electricity Authority officials, all electricity users are technically final consumers under existing electricity regulations, meaning the reduced VAT rate should apply more broadly.

Some experts also argue that the government's interpretation differs from the wording of the Economic Act and could create legal confusion.

Debate Over VAT Credit Rules

Another major concern involves VAT credit claims by the Nepal Electricity Authority.

The amended VAT regulations state that electricity suppliers selling to final consumers cannot claim VAT credits on certain purchases made for electricity distribution.

However, the Inland Revenue Department says VAT credits will still be available for infrastructure and equipment used to supply electricity to customers paying the full 13 percent VAT.

Tax experts argue the regulations remain unclear and may increase operating costs for the Nepal Electricity Authority, which could ultimately lead to higher electricity prices for consumers.

Finance Minister's Promise Yet To Materialise

Finance Minister Dr. Swarnim Wagle had previously stated that electricity tariffs would be adjusted so consumers would not experience higher bills despite the introduction of VAT.

He suggested the Electricity Regulatory Commission could reduce electricity tariffs to offset the additional tax burden.

However, that plan has not moved forward because the Electricity Regulatory Commission currently has no appointed office bearers, preventing any tariff adjustment process from taking place.

Officials say no proposal has yet been submitted by the Nepal Electricity Authority for tariff revision.

Key Takeaways

• Electricity bills will increase from Shrawan 1 (Friday).

• Household users will pay 5% VAT only on electricity consumed above 50 units.

• Commercial, industrial and institutional users will pay 13% VAT.

• Schools, hospitals, government offices, irrigation systems and EV charging stations are also subject to 13% VAT.

• Experts have questioned the legal interpretation of the new VAT system.

The government's plan to offset the tax through lower electricity tariffs has not been implemented due to the vacant Electricity Regulatory Commission.

The new VAT policy marks one of the biggest changes to Nepal's electricity billing system in recent years and is expected to affect millions of consumers as the new fiscal year begins.