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The government is preparing to remove the value-added tax (VAT) imposed on electricity tariffs from the current fiscal year. An agreement in principle has been reached between Energy, Water Resources and Irrigation Minister Biraj Bhakta Shrestha and Finance Minister Dr. Swarnim Wagle to remove VAT on electricity.

According to the Ministry of Energy, Minister Shrestha proposed removing VAT during a meeting with Finance Minister Wagle on Sunday, with the aim of increasing electricity consumption. Finance Minister Wagle responded positively to the proposal, leading to an agreement to remove the VAT.

The government had introduced VAT on electricity services through the budget for the current fiscal year 2026/27. Under the current provision, household consumers are required to pay 5 percent VAT on electricity consumption exceeding 50 units per month, while non-household consumers are subject to 13 percent VAT.

According to the Ministry of Energy, the proposal to remove VAT was made because imposing an additional tax on electricity tariffs would increase the financial burden on consumers at a time when the government has implemented the ‘Energy Consumption Strategy 2083’ to increase electricity consumption.

A ministry source said Finance Minister Wagle has agreed to take the proposal to remove VAT on electricity tariffs to the Cabinet. The process of removing the VAT will be implemented only after the Cabinet makes a decision.

The move to remove VAT has been initiated about two months after the provision imposing VAT on electricity came into effect. Following the government’s decision to introduce VAT on electricity consumption, there had been various public reactions regarding its rate and implementation.

According to Energy Ministry officials, sources claim that the Prime Minister is also positive about removing VAT on electricity. However, a formal Cabinet decision will be required to remove the tax.

Nepalpurbadhar