Electricity is Nepal's principal instrument for energy security, cleaner air, climate mitigation, and productive transformation
A country that curtails monsoon hydropower, spends nearly Rs 340 billion importing petroleum products, and records per-capita electricity demand barely one-tenth of the global average should not tax households for moving beyond basic lighting. The policy penalises progress and protects dependence on imported fuel.
Now that the electricity VAT has taken effect, even as the Cabinet has decided to withdraw comparable levies on education and health, it is harder to defend. That reversal established the right principle: taxes should be reconsidered when they increase the cost of socially beneficial services. The same principle should apply to the 5-percent VAT on household electricity use above 50 units a month.
The first 50 units remain exempt. But that threshold does not distinguish luxury from productive use. About 2.6 million household customers exceed it. A family using an induction cooker, refrigerator, or water pump can easily cross it; charging an electric vehicle at home pushes consumption higher. The tax can therefore begin just when a family starts replacing imported fuel with domestic electricity. The immediate bill may be modest, but the policy signal is not.
Electricity is not merely another taxable commodity. It is Nepal's principal instrument for energy security, cleaner air, climate mitigation, and productive transformation.
On Ember's comparable demand measure, Nepal recorded 372 kilowatt-hours per person in 2024 – above only Afghanistan among SAARC countries. India recorded 1,402 kWh, and the global average was 3,790 kWh. The draft Energy Consumption Growth and Export Strategy, 2083, targets 1,500 kWh per person by 2035. Even allowing for the differing indicators, that ambition is modest: it would bring Nepal only into India's present range and remain far below the global level.
The contradiction is sharpest during the monsoon. The NEA has instructed some hydropower projects to reduce output because electricity cannot be fully consumed, transmitted, or exported. Independent producers estimate that up to 900 MW may remain unabsorbed at certain times. Transmission constraints and restricted market access are partly responsible, but so is Nepal's failure to build domestic demand.
Meanwhile, full-year Customs data show that Nepal spent Rs 337.30 billion importing core petroleum fuels in 2025/26, about 16.1 percent of merchandise imports. Nepal is taxing additional use of its own electricity while spending scarce foreign exchange on imported fossil fuel.
The VAT also discourages home charging of electric vehicles. Yet smart meters and cheaper overnight tariffs could enable EVs to absorb off-peak and wet-season electricity without worsening the evening peak. In June 2024, the Associated Press reported an NEA estimate that EVs were saving Nepal about US$ 22 million annually in petroleum-import costs. The estimate is not current, but the economic direction is clear.
An EV powered by Nepali hydropower converts domestic electricity into mobility; a petrol or diesel vehicle converts foreign exchange into exhaust.
The contradiction extends to cooking. On July 24, Nepal Oil Corporation's website displayed an LPG under-recovery of about Rs 1,078 per cylinder. It is a snapshot, not a current subsidy rate, but illustrates a recurring problem: imported cooking fuel can receive price support while households shifting to domestic hydropower face VAT.
The answer is not to withdraw LPG support abruptly. Blanket support should gradually give way to targeted assistance helping vulnerable households buy induction cookers, improve wiring, and secure reliable electricity.
The health and economic case is strong. A 2025 World Bank paper estimated that, from a private-cost perspective, infrared electric cooking was 22 percent cheaper than LPG in Kathmandu and 35 percent cheaper nationally. A 2024 Lancet Planetary Health study estimated that the modelled social optimum for clean cooking could avert about 9,563 deaths annually by reducing household-air-pollution exposure. Nuwakot research found that cost, reliability, and information influence household choices.
The government's agenda points in the same direction. Its Policy and Programme for 2083/84 commits to the official 100-point reform agenda, 30,000 MW within a decade and greater domestic consumption through energy-based industries and lift irrigation. The draft consumption-and-export strategy promotes electric cooking, electric transport, stronger distribution infrastructure, and seasonal tariffs.
Prime Minister Balendra Shah told Parliament that nationwide induction cooking could make transformers and substations "explode." Finance Minister Dr Swarnim Wagle echoed concerns about induction cookers and EVs. Both argued that VAT revenue would help upgrade the network.
Former NEA managing director Kulman Ghising rejected that justification as technically unrealistic. He said Nepal operated more than 14,000 MVA of transmission-substation capacity and over 5,000 MVA of distribution-transformer capacity, arguing that demand does not arise simultaneously everywhere and that local overloads can be addressed. He called the VAT inconsistent with Nepal's energy-transition goals.
Ghising's response does not remove the need for investment and peak management. It exposes a false choice: Nepal must pursue electrification and grid safety together. A weak transformer is an argument for installing a stronger transformer, not for pricing households back into LPG and petrol.
The government should follow its education-and-health precedent and withdraw the household electricity VAT. But withdrawal alone is insufficient. The first 50 units should remain a protected lifeline block. Beyond it, additional consumption should attract lower marginal tariffs during wet-season surpluses and off-peak hours.
Smart meters and time-of-use pricing should reward electric cooking, overnight EV charging, irrigation, and other productive uses while keeping evening-peak rates cost-reflective. The Electricity Regulatory Commission and NEA should publish a transformer-upgrade timetable and annual milestones towards the 1,500-kWh target. Petroleum support should move from blanket price suppression to targeted protection and electrification assistance.
Nepal should export electricity when exports are commercially attractive. But exports must complement – not substitute for – the electrification of its kitchens, transport, farms, and industries.
Taxing Nepal's own clean power while importing fossil fuels is not prudent policy. It is power taxed and opportunity wasted.
Ghale is a global health, policy, and diplomacy enthusiast
