1 step forward, 2 steps back in NepalFlip-flopping tax rates on battery powered vehicles undermine Nepal’s climate targets and public health
If there is one thing Nepal’s annual budget is consistent about, it is being inconsistent.
In 2020, the government reduced the taxes on electric vehicles, the next one re-imposed it for electric SUVs while cheaper vehicles were still taxed less, this year Finance Minister Prakash Mahat increased the tax on smaller EVs and electric vans while inexplicably reducing the tax on luxury SUVs.
By increasing the tax on entry-level battery-powered vehicles, the government has effectively discouraged the public from switching to clean energy at a time when Nepal is all set to have year-round electricity surplus. The decision also undermines the government’s own decarbonisation goals.
Continued proliferation of diesel and petrol vehicles will also keep worsening air pollution in the cities, affecting public health.
Customs and excise tax on electric cars between 50-100KW has increased by 5% and 10%, meaning they now have to pay 15% customs tax and 10% excise duty, the latter of which was not applicable before. Vehicles in this bracket include electric public utility vans, battery-operated microbuses and smaller e-cars which were gaining popularity across Nepal.
Read also: An electric shock to Nepal’s energy future, Ramesh Kumar
“This is a blatant disregard for the country’s environment policies because the government has significantly increased the tax on more affordable EV options,” says environmentalist Bhushan Tuladhar. “To add insult to injury, they have slashed the tax on bigger vehicles. This is suspicious, especially as it does nothing for government revenue even if that was the reasoning. It’s not just EVs, even the taxes for higher-end 350cc motorcycles have also been lowered.”
Indeed, mid-range and high-end EVs enjoy reduced tax rates or a very minimal increase. Customs and excise for 100-200KW EVs is down from 30% to 20%. Similarly, customs duty for 200-300KW EVs has gone down from 45% to 40% while excise remains the same at 45%. Customs for EVs in the 300KW or above bracket is set at 60-80% against 60% previously with excise maintained at 60%. EVs with 100KW motors will now be at least 20% more expensive.
‘It is deliberate sabotage,’ wrote Atmospheric Scientist Arnico Panday who is also a central committee member of the RSP, the fourth largest party in Parliament on Twitter. ‘The present leadership does not care about clean air, health, people, domestic energy, new technology or the country's future, & probably got bribed by dealers of polluting vehicles in segments with popular EVs.’
The government has changed the tax rates for EVs five times in two years, disrupting the market and raising suspicions that the rates are adjusted based on political patronage of power lobbies among car importers. Especially egregious is the increase in the tax of electric micro-buses which had started becoming a popular form of public transport, and fingers are pointing to diesel microbus importers.
“The tax hike is also unfair from a social justice aspect as we are essentially denying those who could otherwise afford entry-level EVs,” says climate activist Shilshila Acharya. “Our EV landscape is being shaped by vested interest groups.”
Read also: Potholes on the highway to Nepal’s EV future
By 2024 Nepal’s peak power generation capacity is expected to reach 4,500MW while domestic demand will only grow to 2,000MW at current rates of consumption. Much of this surplus therefore risks being spilled. And as of now, Nepal is not allowed to export more than 420MW to India which has rejected any and all Chinese involvement in Nepal’s hydropower projects.
Tax incentives for electric public transport would reduce Nepal’s growing petroleum import bill, and improve air quality. Air pollution was the direct cause of over 42,000 deaths in Nepal in 2019.
“Our policies contradict our climate targets, but more importantly they make no sense even from an economic point of view,” adds Acharya who is with the Avni Centre for Sustainability.
She adds: “We want to reduce our trade deficit and increase the consumption of hydropower. Electric vehicles would have been the best strategy going forward and yet we keep changing our mind about taxing them.”
At COP26 in 2021 in Glasgow, Nepal’s prime minister committed to achieving net zero by 2045 and increasing the sales of private electric vehicles to 25% by 2025 and 90% by 2030. Electric public transport would be 20% by 2025 and 60% by 2030.
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Another sign of contradictory policies was the signing of two petroleum pipeline deals during Prime Minister Dahal’s visit to New Delhi last week. Both India and China have publicly announced that they would stop manufacturing petrol cars by 2030. By that time, Nepal will not be able to import fossil fuel-powered vehicles even if it wanted to.
But perhaps the biggest letdown is the disincentives on switching to electric buses. The budget provides no concessions to electric public transport. India subsidies electric buses, but in Nepal government ministries have been putting up obstacles on charging station to run 40 electric buses by Sajha Yatayat.
Within the electric vehicle bracket, it is the electric buses that benefit any country the most. Reliable public transport is accessible to most people, discourages consumerism and reduces traffic.
“Things we could do immediately to correct our course of action is reduce the tax on electric micros, the market will boom benefiting small time entrepreneurs and help finance electric buses to rapidly shift to cleaner energy,” says Tuladhar who is also the director of Sajha Yatayat.
He adds: “We could use the Rs4 billion already collected as pollution tax, just 5 million will buy 200 electric buses. If you must tax something, increase the pollution tax which is less than 1% of all the taxes we pay, and then divert the fund for clean alternatives.”
Read also: Nepal goes electric, but conditions apply, Ramesh Kumar
Corrigendum: Corrected some new car prices from print edition.