FNCCI Urges Government to Withdraw VAT on Electricity, Citing Rising Business Costs

The Federation of Nepalese Chambers of Commerce and Industry (FNCCI) has urged the government to withdraw the Value Added Tax (VAT) imposed on electricity from the current fiscal year 2083/84, saying the additional tax has increased production and operating costs for businesses. The federation said electricity is a basic requirement for industries, trade and tourism, and higher energy costs are affecting cash flow and overall business competitiveness.

According to FNCCI, businesses with high electricity consumption, VAT exempt transactions, small and medium sized enterprises, and hotels and tourism businesses have particularly reported higher costs after the VAT was introduced. Although businesses can claim tax credit under existing rules, FNCCI said the process and nature of transactions mean that many businesses cannot fully or immediately adjust the VAT paid on electricity, putting additional pressure on working capital and potentially affecting new investment, business expansion and job creation.

FNCCI has also called for reliable and quality electricity supply, citing problems such as voltage fluctuations and unexpected power interruptions that can damage production and machinery. It has urged the government to review the electricity VAT policy in consultation with the private sector and simplify the tax adjustment and refund process.

The federation said electricity should be treated as a foundation for industrial growth, tourism, employment and economic development rather than mainly as a source of government revenue.