A Look at Tax Policies for Electric Vehicles in Nepal 

By – Nabin Kafle

The electric vehicle consumption in the Nepali market has been rising since the ease of taxation by the government on the two wheelers and four wheelers in the electric segment. Nepal levies high taxes on petroleum vehicles but has been providing special rebates for the import of electric vehicles (EV). Before fiscal year 2020/2021, electric vehicles had an excise duty of 10% and customs duty was completely waived. The import of EV’s peaked along with the increasing demand from the public initially but the pandemic slowed it extremely. It is currently stagnant because of the tax policies of the current and previous governments. During the tenure of Yubaraj Khatiwada as the then finance Minister, the excise duty increased to 80% and customs duty from 10% to 40% based on the capacity of the vehicles in the budget of 2020/21. All these measures were taken by the ex- governor of the Nepal Rastra Bank in order to increase revenue and reduce  the drainage of foreign exchange in importing luxury electric SUVs. The next Finance Minister dropped the excise duty on electric vehicles and reduced the customs duty by one-fourth. Because of the ongoing economic crisis, the new coalition government then increased both excise duty and customs through the budget of the Fiscal Year 2079/80. The government has fixed only 1% customs on public electric vehicles but 13% VAT and 5% tax are additional.

The actions taken by the current government is justifiable keeping in mind the depleting foreign currency reserves amid looming economic crisis at hand. This has made the lower income group of consumers distant from their opportunity to get their own private electric vehicle who could not afford the petroleum ones benefiting only the upper middle class. On the other hand, the former group of consumers have to face the hassles of annoyingly unpleasant public transport getting expensive year on year. Looking at the bigger picture, the target group of the government tax policy should be the ones that commute on public transport on daily basis as these form a larger proportion than those using private means of transport. The lack of proper infrastructure, difficult terrain and the lobbying of the old players in the petroleum segment have hindered the introduction of progressive tax policies in the EV segment, most importantly in the battery operated buses. 

Levying increased taxes on private electric vehicles should be supported on the short run until proper infrastructures (DC charging stations, well maintained roads,etc.) are in place and revenue resources remain intact for the government. The taxes on battery operated buses should be updated and eased keeping in mind that it does not cause distortion in the automobile market at hand. To conclude, tax policies in the electric vehicle segment should be progressive such that it meets the revenue purposes of the government without undermining the consumer sentiments since the ultimate impact is all faced solely by the consumers.