Government Plans to Extend Electricity VAT Exemption Limit to 150 Units

The government is preparing to extend the 5 percent VAT exemption on electricity consumption from the current 50 units to 150 units. Preliminary discussions are underway between the Ministry of Energy and the Ministry of Finance, with an estimated annual revenue loss of approximately NPR 202 crore. Anshukiran Shahi, a member of the Electricity Tariff Review Committee, stated that providing consumers with cheaper electricity will likely increase consumption and positively impact the economy.

In the current fiscal year 2083/84 budget, the government announced a 5 percent VAT on electricity consumption exceeding 50 units, and now plans are underway to raise this limit to 150 units. The Ministry of Energy, Water Resources, and Irrigation has confirmed preparations for this change. Previously, an Electricity Tariff Review Committee, chaired by Electricity Authority Board member Anshukiran Shahi, was formed to evaluate electricity tariffs.

The Ministry of Energy has indicated informal talks are ongoing with the Ministry of Finance. Sources from the finance ministry have also confirmed plans to increase the VAT exemption threshold from 50 to 150 units. According to Shahi, “Our understanding is that providing consumers with cheaper electricity will lead to increased consumption, ultimately benefiting the economy.”

If the VAT exemption limit is raised to 150 units, annual VAT collection is expected to be limited to about NPR 1.022 billion. There are 5,308,561 domestic electricity consumers nationwide. When the exemption is up to 50 units, approximately 3,454,112 consumers are exempt from VAT, while 1,854,459 consumers pay the 5 percent VAT.