Prime Minister Balendra Shah has defended the government’s decision to impose a value added tax (VAT) on electricity consumption, stating that the additional revenue will be used to strengthen Nepal’s power infrastructure and support the growing demand for electricity.
Addressing Parliament for the first time on Sunday, Shah said the newly introduced VAT would help finance critical improvements in the country’s electricity distribution system, including the replacement of transformers, upgrading of transmission lines, and modernization of substations.
The government’s budget for Fiscal Year 2026/27 introduced a five percent VAT on electricity consumption exceeding 50 units per month. The measure has sparked criticism from lawmakers, energy experts, and stakeholders who argue that it could discourage the use of electricity and undermine Nepal’s efforts to promote clean energy and electrification.
Responding to these concerns, the Prime Minister stressed that Nepal’s current electricity distribution infrastructure is struggling to keep pace with rising consumption. “Improving electricity distribution infrastructure is essential to increase electricity use,” Shah told lawmakers, adding that the tax revenue would be reinvested directly into the energy sector.
Finance Minister Dr. Swarnim Wagle had earlier clarified that the new VAT replaces the existing two percent luxury tax on electricity consumption. The budget also introduced a 0.50 percent skill promotion fee on gold purchases.
Shah maintained that the financial burden on consumers would remain limited. According to him, the tax would add only around Rs 5 for every Rs 100 worth of electricity consumed, generating resources needed for long-term infrastructure development.
Despite the government’s justification, opposition to the policy has continued. On Saturday, Ujyalo Nepal Party Chairman Kulman Ghising warned that the VAT could discourage households from using electric appliances, particularly electric stoves, and encourage a return to liquefied petroleum (LP) gas. He argued that such a shift would run counter to Nepal’s energy security objectives and green economy ambitions.
The debate comes at a time when Nepal is seeking to expand domestic electricity consumption and reduce dependence on imported fossil fuels. Although hydropower generation has increased significantly in recent years, the country continues to face challenges in fully utilizing its growing electricity production.
The government projects Nepal’s installed electricity generation capacity to reach 5,535 megawatts in the upcoming fiscal year and has set an ambitious target of producing 30,000 megawatts by 2036, raising its previous goal of 24,500 megawatts.
During the parliamentary session, Rastriya Prajatantra Party lawmaker Khusbu Oli questioned the rationale behind imposing VAT on electricity consumption. In response, Prime Minister Shah reiterated that the measure is necessary to fund infrastructure upgrades that will support Nepal’s transition toward an electricity-driven economy and ensure the reliability of the national power system.
