KATHMANDU, JUNE 14

Onion price has soared significantly over the past week in the domestic market after traders stopped imports in protest against government's decision to impose a 13 percent value added tax (VAT) on certain types of imported fruits and vegetables.

According to Kalimati Fruits and Vegetables Market Development Board, the price of onion which stood at around Rs 35 per kg at wholesale price in the domestic market before the budget announcement is currently being traded in between Rs 80 and Rs 100 a kg.

'The onion stock at Kalimati has run out due to the sudden disruption in supply after traders halted imports over the VAT bill imposed by the government. Owing to onion shortage and lack of its trade in the market, the board has stopped updating the price of onion in the daily price list,' Binay Shrestha, information officer at the Kalimati Fruits and Vegetable Market, told The Himalayan Times.

The Nepal Agricultural Produce Potato, Onion Import Export and Wholesalers Association at a press conference on Monday demanded the government not to impose 13 percent VAT on the import of certain vegetables and fruits, specifically potatoes and onions, stating that the decision will lead to a hike in their market prices and ultimately affect consumers as the country's domestic production is insufficient to meet the local demand. The association had warned of halting imports until the imposed VAT of 13 percent on potatoes and onions is removed.

According to the association, the 13 percent VAT on top of a nine percent agricultural service fee and a five percent advance income tax has discouraged traders and consumers and will further increase smuggling activities from the border areas, making onions and potatoes more expensive.

Onion is cultivated on over 20,252 hectares of land in Nepal, with a production capacity of 289,055 metric tonnes, as per the statistical information on Nepali agriculture 2020-21 published by the Ministry of Agriculture and Livestock Development.

According to Shrestha, the country is almost entirely dependent on imports from India for onions. 'Kalimati market used to receive more than 70 to 80 tonnes of onions daily prior to the traders' decision to halt onion and potato imports from May 29. However, there is no problem with the supply of potatoes and other vegetables and fruits as domestic produce continues to enter the market,' he said.

In the past 10 months of the current fiscal year, Nepal imported onions worth Rs 5.59 billion from India, according to the Department of Customs. Similarly, onions worth Rs 5.63 billion were imported from India in the last fiscal year 2021-22.

'With the government's decision to impose VAT on certain kinds of fruits and vegetables, prices were sure to fluctuate to some extent as traders would have to recoup their increased costs from the consumers. However, the sudden increase in onion price in a span of two weeks is worrisome and should be looked into by the authorities concerned,' Shrestha added.

Meanwhile, Prem Lam Maharjan, president of the National Consumers Forum, blamed the government's decision to impose VAT on imported vegetables like potatoes and onions for the shortage and eye-watering price hike. 'The forum is very concerned about the government's decision to impose VAT on imports of certain fruits and vegetables in the name of safeguarding and increasing domestic production. This has negatively impacted the market and the general consumers,' he said.

He complained that while the government is focused on increasing revenue collection and traders looking to maintain their profit margins, it is the consumers who have been left teary-eyed.

'The government has yet again fallen short of fulfilling its duties diligently. Instead of checking the available stock of kitchen staples like onions through customs to cater to domestic demand and to avoid a supply disruption, a decision to impose VAT was made on a whim in the name of promoting domestic production. On the other hand, the traders halted imports namely in protest against the government's decision but increased prices in the domestic market as soon as the budget was announced,' Maharjan added.

According to Homnath Bhattarai, director at the Department of Commerce, Supplies and Consumer Protection, the government is aware of the supply disruption and has intensified inspections in market areas for onions being traded without a bill.

'We have slapped fines on some businessmen selling onions without a bill in low quantities. Kalimati and other large markets have run out of onions and the supply disruption has led to increased prices of onions in the domestic market. The department is aware of the current situation and is determined to stop and take action against any kinds of activities related to smuggling and price gouging in the domestic market,' Bhattarai shared.

During the meeting of the House of Representatives on Monday, Finance Minister Prakash Sharan Mahat, while answering questions raised by lawmakers over the government's decision to impose a tax on imported consumer goods, had insisted that the imposed VAT will safeguard and promote domestic production and demotivate imports while also narrow down the trade deficit.

A version of this article appears in the print on June 15, 2023, of The Himalayan Times.