FNCCI urges govt to withdraw VAT on electricity tariffs
KATHMANDU: Federation of Nepalese Chambers of Commerce and Industry (FNCCI) has urged the government to withdraw the value-added tax (VAT) imposed on electricity tariffs for fiscal year 2026/27, warning that the tax has significantly increased production costs.
The FNCCI said electricity is basic infrastructure for industry, trade and tourism, and that imposing VAT directly increases operating expenses, strains cash flow and undermines business competitiveness.
The business body said it had received widespread complaints from owners of energy-intensive industries, VAT-exempt businesses, small and medium-sized enterprises, hotels and tourism companies.
It warned that, despite provisions for input tax credits, many companies cannot immediately or fully recover VAT paid on electricity because of existing tax adjustment and refund procedures and the nature of certain transactions.
"This has not only created pressure on working capital but has also affected new investment, industrial expansion and employment creation," the FNCCI said.
It added that the policy risked shifting the additional financial burden onto consumers and fuelling broader price inflation.
The FNCCI also urged the government to ensure a regular, high-quality and reliable electricity supply to industrial units to reduce damage to machinery and disruption to production caused by voltage fluctuations, sudden outages and technical faults.
Alongside its call to withdraw the tax, the FNCCI requested extensive consultations with the private sector and the introduction of a simple, transparent and time-bound tax adjustment and refund mechanism.
It said electricity should be treated as vital infrastructure for economic growth rather than primarily as a source of government revenue, and called for the immediate withdrawal of VAT on electricity tariffs.
