VAT on electricity raising business costs, says FNCCI calling for withdrawal

The Federation of Nepalese Chambers of Commerce and Industry (FNCCI) has urged the government to withdraw value-added tax (VAT) imposed on electricity, saying the tax has increased production and operating costs for businesses.

The federation said the VAT on electricity, introduced from the current fiscal year 2083/84, has directly affected production costs, operating expenses, cash flow and the competitiveness of businesses.

Electricity is a basic infrastructure for industrial production, trade and tourism, the FNCCI said, arguing that additional taxation on power is increasing the cost burden on businesses.

The federation said the impact has been particularly significant for energy-intensive industries, businesses involved in VAT-exempt transactions, small and medium-sized enterprises, and hotels and tourism businesses.

Although the law provides for input tax credit, businesses cannot always immediately or fully adjust the VAT paid on electricity because of the existing tax adjustment and refund procedures and the nature of their transactions, the FNCCI said.

The federation warned that the additional tax burden is putting pressure on working capital and could discourage new investment, industrial expansion and job creation. It also said businesses could pass the increased costs on to consumers, adding to inflationary pressure.

The FNCCI said the policy of increasing energy costs could undermine private-sector investment and production expansion at a time when Nepal needs to promote industrialisation through greater domestic electricity consumption, import substitution and export growth.

The federation also called on the government to ensure regular, reliable and quality electricity supply to industries. It urged authorities to address voltage fluctuations, sudden power interruptions and other technical problems that can cause production losses and damage machinery.

The FNCCI has asked the government to review the VAT provision on electricity through broader consultation with the private sector and make the tax adjustment and refund process simpler, transparent and time-bound.

“Electricity should be treated not merely as a source of revenue but as basic infrastructure for industrial production, tourism development, job creation and economic growth,” the federation said, urging the government to refund the VAT charged on electricity.