India’s GST Overhaul Raises Concerns for Nepali Industries

India’s decision to slash Goods and Services Tax (GST), equivalent to Nepal’s Value Added Tax (VAT), rates across a wide range of products has raised alarms among Nepali industrialists, who fear increased competition from cheaper Indian goods in the domestic market.

An all-powerful government panel of India, during a recent meeting chaired by Finance Minister Nirmala Sitharaman, reduced the existing four-tier GST structure of 5%, 12%, 18% and 28% to just two slabs of 5 % and 18 %.

A majority of the goods will attract lower taxes, though a special rate of 40% is proposed on a select few items such as high-end cars, tobacco and cigarettes. No tax would apply on purchases of life and health insurance. The revised rates take effect on September 22.

Most household essentials, medicines, small cars, and electronic goods are now subject to lower GST. For example, the rate on dairy products has been cut from 18 percent to 5 percent.

Nepal Dairy Association President Prahlad Dahal warned that the domestic dairy industry could collapse unless Nepal immediately reduces its own taxes.

“The government must rethink VAT and tax rates. Otherwise, producers will not survive,” he said, adding that dairy entrepreneurs are preparing to lobby the government.

Nepali businesses have long demanded differentiated VAT rates. Currently, VAT is uniformly applied at 13 percent regardless of the product. In contrast, India has lowered GST not only on dairy but also on stationery, household goods, health services, insurance, footwear, textiles, vehicles, electronic items, and cement.

One of the biggest shifts concerns cement, where the rate has dropped from 28 to 18 percent. Nepal, now self-sufficient in cement and even exporting limited quantities to India, fears Indian cement could undercut domestic production. While the government has been protecting the industry with import duties, cheaper Indian cement could still pose a challenge.

Bishnu Neupane, chairman of Sarbottam Cement, said that for now, Indian cement remains more expensive than Nepali brands. “Even if prices fall to near Nepali levels, Indian products will likely capture only limited markets near the border,” he noted.

Business leaders, however, warned of broader risks. Pawan Kumar Sharada, president of the Koshi Province chapter of the Confederation of Nepalese Industries (CNI), said Nepal’s rigid tax structure leaves it vulnerable.

“If VAT and excise duties are not made flexible like India’s, our industries will suffer,” he said. He pointed out that some Nepali traders have already shifted shops from Biratnagar to Jogbani across the border. “They return to Nepal only to sleep. If this continues, industries may also relocate. Currently, 60 percent of Nepalis in border areas shop in India. That figure could rise to 95 percent,” he warned.

Industry groups fear daily consumables will be hardest hit. Morang Chamber of Industries President Nand Kishor Rathi explained that raw material–based industries may not face immediate challenges, but producers of consumer goods will.

“Previously, producing in Nepal was profitable as Indian GST rates were higher. Now, many items are either tax-exempt or reduced by more than 10 percentage points. This will create serious competition in our market,” he said.

Rathi highlighted sugar as a key concern. In India, sugar prices are around Rs 70 per kilo. With GST falling from 18 percent to 5 percent, prices could drop to Rs 55. In Nepal, sugar costs about Rs 90 per kilo. “A 35-rupee difference per kilo will draw consumers to Indian markets, leaving Nepali markets dry,” he said. He urged Nepal to adopt flexible VAT and tax reforms to protect domestic industries.

Business leaders in Biratnagar echoed the same concerns. Anshu Banjara, president of Birat Trade Association, stressed that Nepal must adjust its tax rates in response.

On a positive note, certain exports may remain unaffected. Shiva Kumar Gupta, vice president of the Nepal Tea Producers Association and Director of Star Tea Industries, said the unchanged 5 percent GST on tea and cardamom means exports will not face disruptions. Similarly, Subash Bhattarai, president of the Nepal Cardamom Producers Association, noted that farmers are currently earning Rs 90,000 to Rs 95,000 per 40 kg.