Government Hikes Taxes on Electric Vehicles to Raise Resources

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Government Hikes Taxes on Electric Vehicles to Raise Resources

KATHMANDU: Contrary to its policy of promoting electric vehicles, the government has increased the tax on their import, citing the lack of resources. The new budget for the next fiscal year (FY 2081/82) has raised the tax on all types of electric four-wheelers.

The government has increased customs and excise duties on electric vehicles (EVs) through the budget announcement. According to the new rates, EVs up to 50 KW will now be subject to a 15 percent customs duty and a 5 percent excise duty. Previously, these vehicles had no excise duty and a 10 percent customs duty.

Similarly, the customs and excise duties for vehicles from 51 to 100 kilowatts have been increased by an additional 5 percentage points each, up from 15 percent customs and 10 percent excise duty.

For vehicles from 101 to 200 kW, the customs duty has been raised to 30 percent, while the excise duty remains at 20 percent. For vehicles from 201 to 300 kW, the customs duty has been increased by 20 percent, with a 10 percent reduction in excise duty. For vehicles over 300 kW, the customs duty has also increased by 20 percent, with a 10 percent reduction in excise duty. Overall, the tax has increased by 10 percent.

The government has justified this increase by noting a significant decline in revenue from vehicle imports as the imports of electric vehicle have increased, while the imports of petroleum-powered vehicles have fallen.

Officials of the Ministry of Finance claim this move corrects past mistakes. Revenue Secretary Ram Prasad Ghimire stated in a press conference on Wednesday, "Initially, we reduced the tax to promote electric vehicles. It had to be corrected eventually, and this increased tax is a measure of policy reform."

In Nepal, vehicle tax rates are determined by engine capacity and kilowatts, whereas in India, tax rates are based on price. Due to lower taxes, the import of electric vehicles has increased. As a result, the government’s revenue collection from vehicle imports has been reduced.

According to the Department of Customs, the government collected up to Rs 90 billion from the taxes on imports of vehicles and spare parts in FY 2078/79, but it dropped to Rs 33.33 billion in FY 2079/80.

In the first nine months of the current fiscal year 2080/81, the government has collected only Rs 39.89 billion from vehicle imports. Additionally, 8,497 electric four-wheelers were imported in the first 10 months of the current year, compared to 4,050 in the previous year.

Despite the government's goal to increase the usage of electric vehicles, as outlined in the Paris Agreement on climate change, which targets 25 percent electrification of total vehicle sales and 20 percent of four-wheeler public vehicle sales by 2025, and 90 percent and 60 percent respectively by 2030, importers of electric vehicles criticized the government's unstable policy.

Over recent years, the government has frequently changed the tax rates on imports of electric vehicles. An official from SPG Automobile, which sells Omoda-5 electric vehicles, told New Business Age that the tax increase would negatively impact promotion of electric vehicles in Nepal.

The NADA Automobiles Association of Nepal has requested a definite and long-term policy for electric vehicles but received no response. NADA General Secretary Surendra Kumar Upreti pointed out the inconsistency between the government's stated priorities and actions.

"Frequent changes in government policy will have a serious impact on the electric vehicle business," he said, adding that such instability discourages potential entrepreneurs from producing electric vehicles in Nepal.

Revenue Secretary Ghimire argued that despite the tax increase, it would not adversely affect the imports of electric vehicle. He explained that while the government initially set low tax rates to promote EVs, it now needed to adjust them to meet revenue targets, especially given the increased import of 50 to 100 kilowatt EVs.

Overall, the fluctuating tax policies have raised concerns among electric vehicle importers and industry stakeholders, who are calling for more stable and supportive government policies to foster long-term growth and sustainability in the sector.

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