The government is considering withdrawing the Value Added Tax (VAT) imposed on electricity tariffs from the beginning of the current fiscal year, amid growing pressure from various sectors of society.
The move comes just two months after the VAT provision was introduced. For the first time, the government imposed VAT on electricity consumed by households, industries and commercial users from the beginning of fiscal year 2026/27.
Officials at the Ministry of Energy, Water Resources and Irrigation (MoEWRI) said Energy Minister Biraj Bhakta Shrestha and Finance Minister Swarnim Wagle discussed the possibility of removing the tax on electricity consumption during a meeting on Sunday.
Through the budget for fiscal year 2026/27, Finance Minister Wagle introduced VAT on electricity, citing the need to generate resources for the development of electricity transmission infrastructure.
Under the provision, a 5 percent VAT was imposed on electricity consumption exceeding 50 units for household consumers, while industrial and commercial users are subject to a 13 percent VAT.
The decision has faced criticism from businesses and consumers, who have argued that the additional tax has increased operating costs for industries and businesses as well as household expenses.
The government is also facing additional pressure to reconsider the provision amid a shortage of cooking gas in recent months. Critics have questioned the decision to tax electricity while the government is simultaneously promoting electricity-based alternatives such as electric vehicles and induction stoves.
Finance Minister Wagle had previously defended the VAT provision in response to concerns raised by lawmakers, maintaining the government’s position on the electricity tax.
However, officials from the Energy Ministry said the government is now reviewing the provision.
Shaligram Bhandari, joint spokesperson for the MoEWRI, said the two ministries have yet to reach a final decision on whether to completely abolish the VAT or increase the existing exemption threshold for electricity consumers.
The final decision will determine whether the government withdraws the electricity VAT altogether or modifies the current threshold and rates.
