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Following intense criticism from various sections of society, Finance Minister Swarnim Wagle has decided to withdraw the proposed Value Added Tax (VAT) on electricity consumption. He stated that the government will revise its proposal to impose VAT on utility bills.

As Nepal has already submitted its Nationally Determined Contributions (NDCs) to the UNFCCC - committing to achieving net-zero emissions by 2045 - imposing additional taxes on clean electricity would contradict the country's environmental commitments.

Speaking in the House of Representatives on Thursday, Wagle addressed widespread concerns over the proposal, which initially stipulated that consumers using more than 50 units of electricity per month would be required to pay VAT.

"We are preparing measures to ensure that the burden does not fall on end consumers. Even if this 5% VAT is implemented, we are considering raising the tax-free consumption threshold from 50 units so that around 95% of Nepalis will not be affected," he said, noting that discussions were ongoing between himself and the Energy Minister. "From Shrawan 1 (mid-July), decisions will be made in the best interests of consumers and the general public."

While presenting the budget for the fiscal year 2083/84 (2026/27), Wagle had announced that electricity consumption exceeding 50 units per month would be subject to VAT at a concessional rate. According to officials, the proposal was to impose a 5% VAT on electricity consumption above that 50-unit threshold.

The Finance Minister argued that the electricity sector has already attracted investments worth hundreds of billions of rupees and will require even more capital in the future. Given its significant contribution to the GDP, he stated that the sector could no longer remain outside the formal economy.

"Previous governments may have hesitated because the measure was unpopular," Wagle said. "But a government with a strong mandate must take such steps because they are in the nation’s long-term interest."

Private School Tax

Addressing the proposal to impose a 3% tax on private schools, Wagle argued that there had been misunderstandings and misinformation regarding the measure.

"Families that are within the tax system will be allowed to deduct up to Rs. 25,000 spent on private school education for their children," he explained. "This budget is designed to support the middle class while advancing an unprecedented campaign to formalize the economy."

Tax Relief Measures

The minister also urged citizens to take advantage of various tax exemptions. He stated that the government has exempted annual incomes of up to Rs. 1 million from income tax. As a result:

Households earning around Rs. 83,000 per month will not have to pay any income tax.Households earning up to roughly Rs. 100,000 per month will also benefit from significant tax relief, which he described as a major reform.

The Need for Economic Transformation

According to Minister Wagle, Nepal’s economy over the past three decades has been driven largely by remittances, import-based consumption, and rising asset prices. While this model helped sustain the economy, strengthen foreign exchange reserves, and improve living standards for millions, he argued that it is unsustainable in the long run.

"No nation can achieve lasting prosperity by continuously sending its most energetic young people abroad," Wagle asserted. "No economy can achieve long-term development by prioritizing consumption over production, and no society can permanently rely on asset-price inflation instead of productivity."

He noted that Nepal’s core challenge is not only to accelerate economic growth but also to transform its foundational sources. According to Wagle, the current budget aims to shift Nepal: From import dependence to global competitiveness. From remittance reliance to entrepreneurship, investment, innovation, and robust exports.

A New Direction

Wagle said the government is attempting to move from a distribution-oriented state to one that actively creates opportunities; from protectionism to competitiveness; and from a dependent mindset to a confident, self-reliant economy.

He described the budget’s greatest strength as its overarching trajectory, stating, "We are not merely managing the status quo; we are trying to set a new direction for change."

He acknowledged that the reform process is never truly complete and did not claim the budget was flawless. However, he maintained that it provides a vital blueprint for economic transformation over the coming decade rather than merely listing expenditures.

"This budget is not the final destination, but it is the first firm step toward a productive, competitive, innovative, employment-generating, and self-confident Nepal."

A Calm Response Amid Criticism

Wagle has previously faced backlash for responding aggressively to allegations against him, including past instances where he warned opposition figures that he was tracking their activities and could initiate investigations.

During Thursday’s parliamentary session, opposition lawmakers once again fiercely criticized and questioned him. For instance, Harkaraj Rai jokingly referred to him as the "acting Prime Minister, Defence Minister, and Finance Minister." Similarly, Ain Mahar questioned him regarding allegations of tax evasion and arbitrary tax-rate changes, asking whether he was prepared to face a parliamentary investigation.

However, unlike on previous occasions, the Finance Minister responded calmly and maintained a measured, non-aggressive tone throughout Thursday’s session.