Nepal reduces tax on electric cars

After widespread criticism of the decision in the budget to slap hefty taxes on electric vehicles, the Nepal government reversed its move in a Cabinet meeting on Thursday.

The decision was made in the same ministerial meeting in which former Finance Minister Yubaraj Khatiwada who had raised the tax on battery-powered cars was appointed Nepal’s new ambassador to the United States.

The Cabinet decided to reduce the taxes by between 25 to 80% depending on the capacity of the vehicles, although the VAT and excise tax have been retained.

Despite his own government’s commitment two years ago to make 20% of vehicles electric-powered by 2020, in his annual budget speech in May, Khatiwada increased the excise tax of only 10% on battery cars to 40-60%, and another 60% customs duty.

Under current rules, electric cars only had to pay 10% excise and 13%VAT and minimal customs duty. Now, the tax formula has raised the total tax to between 120-140% which would price battery cars higher than a petrol or diesel car of the same size.

Battery-powered cars had gained popularity in Nepal in the past decade because of the low taxes had made electric cars more competitive than fossil-fuel cars which are taxed at 260%. And in the past two years, improvements in range and charging times of plug-ins made them much sought after.

After his budget speech, Khatiwada was accused of pandering to the interest of the diesel and petrol lobby and there was much outrage about his decision. The finance minister defended his move saying that battery SUVs were a luxury item and there was no reason they should not be taxed at the same rate as diesel ones.

At a time when Nepal had a surplus of electricity in its grid for the first time in many years, the government was accused of letting it go waste by not using the power to charge cars at night.

Khatiwada had raised the tax formula to between 120-140% which would price battery cars higher than a petrol or diesel car of the same size. Electric vehicles of peak power 50-100kW had to pay 40% excise, 50% if it was 100-150kW. The excise went up to 60% for battery cars with peak power of 150-200kW.

Thursday’s Cabinet decision now announced a 80% tax rebate on vehicles in the 30% excise bracket, 75% rebate for cars in the 40% excise bracket. More expensive electric vehicles with 50% excise would now have 35% of their tax shaved off, and 25% rebate for cars in the higher bracket.

Nepal imports battery-powered cars from India’s Mahindra, Kia and Hyundai, MG, Peugeot, Audi and BYD. Because the budget decision in May was so sudden, many of their vehicles were en route, and some of them have been parked at the Birganj customs on the Indian border for the past four months.

Importers who had cancelled further orders after May said Thursday’s Cabinet decision was “better than nothing” they had cancelled further orders.

Electric cars were also exempted from the annual Rs35,000 road tax that petrol and diesel vehicles had to pay. However, Thursday’s Cabinet decision does not mention waving this tax.

There were other advantages in promoting electric vehicles, and foremost among them was using surplus domestically-generated electricity and reducing the reliance on fossil fuel imports from India. Nepal’s diesel imports alone have doubled since 2016.

Electric cars were also seen as a way to reduce Kathmandu’s air pollution and make an improvement in air quality.