The government has defended its controversial decision to hike the taxes on electric vehicles, arguing that it had to revisit the tax rates and electricity tariffs to finance Rs 11.62 billion that the budget has announced in subsidies to the electricity users.

The budget for 2020/21 has increased the customs duty on electric vehicles from 30 percent to 80 percent and the excise duty from 5 percent to 80 percent. Earlier, only a 10 percent customs duty and VAT were levied on the import of electric vehicles.

The new decision has dragged the government into a controversy on the ground that it contradicts the norm of making the country self-reliant in energy and increase in per capita energy consumption.

Speaking at parliament on Tuesday, Minister for Energy, Water Resources and Irrigation Barshaman Pun hinted the government needs to take the measure to compensate for the huge amount of subsidies to be offered to households and industries. “Of the amount, the government will finance some portion from its source directly or via grant to Nepal Electricity Authority while the rest will have to be raised from taxes and fees.”

According to him, the government has only hiked the taxes on luxury electric vehicles. “Unlike in the past, the government has categorized electric vehicles into five types while such vehicles meant for public transport are still subjected to just one percent duty,” said Pun.

Pun reiterated that the government has prioritized increasing domestic consumption of electricity to minimize the import of fossil fuels that contribute more than 60 percent to the total energy demand of the country. “For the purpose, the budget has reduced customs duty on electric stoves used by households to five percent from 15 percent.

In addition, the electricity tariffs for a household consuming less than 10 units per month has been waived completely that will benefit 861,000 households. Similarly, the demand charge for selective industries have been removed. Pun said these measures will help increase electricity consumption.

The current electricity production capacity of the country has reached 1,386 MW. Additional 1,300 MW of electricity is expected to come online in the next fiscal year. According to Pun, the under-construction projects such as Upper Tamakoshi (456 MW), Rasuwagadhi, Upper Sanjen, Mid Bhotekoshi and number of other hydropower projects from the private sector will be completed next year to add the prescribed energy to the national grid.

The government has set a target to provide electricity service to every household within 2022 and make the per capita electricity consumption to 700 units within four years. As of now, electricity supply has reached 4.681 million households while the per capita power consumption stands at 267 units.

Stakeholders, however, have been saying that the proposed hike in electricity tariff along with revised taxes in electric vehicles is likely to increase the cost of energy use multifold affecting the affordability for the prospective users thereby affecting the government’s target to raise per capita consumption of domestically produced energy.

Lawmaker Gyanendra Bahadur Karki said the government's current plan will help increase the electricity demand only nominally. “If the projected production will come online, in the next few years an estimated energy worth Rs 200 billion will go to waste every year provided a radical plan is not introduced to increase the consumption significantly,” Karki said.