Nepal Hydropower: IPPAN Demands 15-Year Tax Exemption for Energy Projects
26th March 2025, Kathmandu
The Independent Power Producers’ Association of Nepal (IPPAN) has submitted 24 critical suggestions to the government for the fiscal year 2082/83. These recommendations focus on tax exemptions, revenue reforms, and policy changes aimed at boosting Nepal’s energy sector, particularly hydropower.
Nepal Hydropower IPPAN Demands
One of the key proposals is to grant a 15-year tax exemption to energy projects, especially hydropower, until Nepal reaches 28,500 MW of electricity production. After this period, IPPAN suggests a 50% tax reduction for an additional five years. This would encourage private investment and facilitate the growth of the energy sector.
Additionally, IPPAN recommends reducing customs duties on machinery and equipment imports for energy projects to just 1%. This would help lower costs for developers, making projects more affordable. The association also proposes that electricity sales should be exempt from taxes, with a zero VAT rate. This would reduce the final price for consumers and make domestically produced electricity more competitive.
Another significant proposal involves explosive materials. Currently, only government projects benefit from customs duty exemptions on these materials. IPPAN wants private hydropower projects to receive the same exemptions, further lowering project costs. In addition, they suggest simplifying customs procedures and reducing import duties for essential equipment used in energy generation.
Regarding environmental policies, IPPAN calls for a quicker and easier process for Environmental Impact Assessments (EIA) and Initial Environmental Examinations (IEE). These studies should be approved by the relevant ministries to speed up project approvals. IPPAN also advocates for exempting all repair and maintenance costs of operational hydropower plants from taxes, which would help reduce ongoing expenses for these projects.
To promote solar power, IPPAN recommends extending the same customs and VAT exemptions given to hydropower projects to solar power projects as well. This would make solar energy more viable and attractive for investors. The association also suggests that storage and pumped storage energy projects receive tax benefits, with permits extended up to 75 years and royalty holidays for 25 years. Such measures would encourage private sector involvement in these important energy storage projects.
Furthermore, IPPAN advocates for eliminating penalties on energy producers when external factors, such as climate change, reduce power production. This would prevent companies from facing penalties during unforeseen circumstances.
In terms of land acquisition, IPPAN proposes that energy projects be exempt from land boundary restrictions. They also recommend that land used for energy projects be valued based on the minimum rates set by the land revenue department, ensuring a fair process.
IPPAN also urges the government to simplify the documentation and regulatory requirements for energy projects. By doing so, developers can move through the approval process more quickly. The association also calls for eliminating special taxes or fees imposed by local governments on energy projects, which could otherwise create financial burdens.
Lastly, IPPAN suggests a unified approach to the Return on Equity (ROE) for both small and large projects, ensuring consistency across the sector. By applying these reforms, IPPAN believes that Nepal’s energy sector can become more competitive, sustainable, and attractive to investors.
These recommendations aim to address the challenges faced by energy developers and foster the growth of Nepal’s energy capacity, ultimately benefiting consumers and the broader economy.
For more: Nepal Hydropower IPPAN Demands
