VAT on Electricity Will Drive Up Inflation and Production Costs: Former NCC President Rajendra Malla
20th August 2026, Kathmandu
Former Nepal Chamber of Commerce President Rajendra Malla has strongly criticized the government’s decision to impose 5% VAT on domestic electricity use and 13% on industrial electricity use. Read how this tax policy threatens Nepal’s production costs, dampens industrial competitiveness, and burdens consumers.
VAT on Electricity Will Drive Up Inflation
Highlighting that imposing Value Added Tax (VAT) on electricity will escalate production costs and fuel inflation, former Nepal Chamber of Commerce (NCC) President Rajendra Malla has strongly criticized the current tax policy.
Key Highlights
Call for Policy Revision: Former NCC President Rajendra Malla has urged the government to rethink its tax policy on electricity.
Burden on Consumers and Industries: The policy imposes a 5% VAT on domestic consumers and a 13% VAT on commercial and industrial users.
Impact on Competitiveness: High energy taxation threatens to raise manufacturing costs, weaken the competitive edge of Nepalese industries, and drive up prices for general goods and services.
Why Electricity Taxation Hinders Economic Growth
As Nepal moves toward surplus electricity production during the wet season, the focus should ideally shift toward expanding domestic consumption. However, the introduction of VAT on electricity has sparked widespread concern among business leaders.
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Expressing his views publicly, Malla pointed out that adding an economic burden on basic utilities is counterproductive when the country’s primary economic objective should be industrial revival, job creation, and production expansion.
“At a time when the economy needs to be dynamic and households need relief, imposing taxes on basic utilities like electricity points our economic policy in the wrong direction,” Malla stated. “Instead of making electricity expensive, we need a policy that provides cheap, accessible, and competitive energy to support businesses and citizens.”
Core Concerns Raised by Industry Experts
Rising Production Costs: Levying 13% VAT on industrial and commercial electricity consumption directly increases the cost of manufacturing goods and delivering services, which will ultimately be passed down to everyday consumers as inflation.
Weakened Industrial Competitiveness: Higher operational inputs weaken the market position of Nepalese industries both domestically and internationally.
Missed Opportunity for Internal Consumption: With domestic power generation on the rise, affordable and reliable electricity should be funneled into agriculture, tourism, manufacturing, and hydropower sectors to maximize economic multiplier effects.
Malla concluded by urging the government to prioritize long-term growth and investment incentives over short-term revenue collection, calling for an immediate review of the electricity tax framework to provide relief to businesses and the general public alike.
