Inland Revenue Department Clarifies VAT on Electricity Consumption to Apply Only from Shrawan 1

The Inland Revenue Department (IRD) has clarified that the newly introduced Value Added Tax (VAT) on electricity consumption will apply only to electricity used from Shrawan 1, 2083 onwards, addressing widespread confusion among consumers and businesses over the implementation of the new tax provision.

In a public notice issued on Tuesday, the department explained that although the Economic Act, 2083 amended the Value Added Tax Act, 2052 to impose VAT on electricity services, the provision becomes effective only from Shrawan 1. Under the amended law, electricity supplied to final consumers will be subject to 5 percent VAT, while electricity supplied to other consumers, including businesses falling under the applicable category, will attract 13 percent VAT.

The clarification comes after concerns were raised regarding electricity bills issued on or after Shrawan 1 for power consumed during the month of Ashadh. The department stated that electricity consumed up to Ashadh 32, 2083, even if billed after Shrawan 1, will remain exempt from VAT because electricity was still listed under the VAT-exempt essential goods and services schedule during that period. Therefore, VAT will not be charged on electricity consumed before the new provision came into force.

The IRD further clarified that the VAT will apply to all electricity consumption from Shrawan 1 onwards, regardless of the billing date. It also stated that minimum charges and demand charges collected by the Nepal Electricity Authority as part of the approved electricity tariff are considered components of the electricity service. Consequently, these charges will also be subject to VAT on electricity consumed from Shrawan 1.

The department said the clarification was issued to eliminate confusion among the general public, electricity consumers, and businesses regarding the implementation of the new VAT provisions. It urged all stakeholders to follow the revised tax rules as stipulated in the Economic Act, 2083.