- Nepal has the world’s second-highest rate of electric vehicle adoption, but a newly proposed government tax hike on EV imports and electricity consumption could undermine this transition.
- The government argues the previous decade of EV tax breaks was fiscally unsustainable and primarily benefited wealthy buyers in a country where most people can’t afford a car of any kind.
- The new tax could also slow households’ switch from gas cooking stoves to electric ones, with critics pointing out that electricity costs are the single strongest predictor for this transition; they also argue the government would save far more by accelerating that switch — and cutting gas subsidies — than it would collect from the new tax.
- The policy has also exposed divisions within the government itself: the energy minister backed a pro-consumption strategy just days before the tax landed; engineers have publicly disputed the prime minister’s warnings about grid overload; and officials are already signaling they may raise the rates from 5% to up to 13%.
KATHMANDU — When Balendra Shah took office as Nepal’s new prime minister in March following a landslide victory for his party, he inherited a fuel crisis triggered by the U.S.-Israeli war on Iran. His government faced a choice between speeding up the clean energy transition or shoring up the public finances needed to sustain it. In its May 29 fiscal policy, it chose the latter.
Nepal imports fossil fuels at a cost of 300 billion rupees ($2 billion) a year, including cooking gas that it subsidizes about 9 billion rupees ($59.5 million) annually. On the “clean” side of that equation, nearly all its grid electricity comes from hydropower — so much so that it exports the surplus to India and Bangladesh during the wet season. And on sales of electric vehicles, Nepal ranks second globally, with EVs estimated to account for 73% of new car sales in 2025, thanks to lower import taxes compared to internal combustion engine (ICE) vehicles.
But the new government argues for a shift to raise revenue to fund grid upgrades that would make a clean energy transition possible in the first place. A former bureaucrat and a sitting official both told Mongabay that this logic is backward: that the tax revenue raised will be less than the savings in gas subsidies if it instead encouraged households to switch to electric stoves.
In his maiden budget speech, Finance Minister Swarnim Wagle announced a 5% value-added tax on high-consuming electricity users, and fresh new taxes on EV imports. The prime minister said the government needs the money: “We need funds for strengthening the [electricity] transmission system and VAT is for that purpose,” Shah told parliament on June 1.
This marks a shift in the policy direction of the past two decades, endorsed by successive governments, and even by Shah’s Rastriya Swatantra Party (RSP) in its own March election manifesto. During campaigning, the party promised to triple per-capita electricity consumption to 1,500 kilowatt-hours and generate 30,000 megawatts within a decade.
The need is real, say those in favor of the taxes. The Nepal Electricity Authority’s (NEA) annual report for the 2024-2025 fiscal year acknowledges that “the scale of investments required to meet these challenges far exceeds NEA’s operating cash surplus.” Ghanashyam Upadhyaya, secretary at the Ministry of Finance, added that the government could no longer afford to forgo revenue from EV imports, given how heavily state finances depend on import duties.
An independent policy analysis by the Institute for Integrated Development Studies published in March 2025 quantifies the fiscal cost of the previous EV incentive regime: in FY 2023-2024 alone, the revenue forgone by importing 11,700 EVs instead of the equivalent ICE vehicles amounted to 15.59 billion rupees ($103 million), with the opportunity cost rising to 61 billion rupees ($403 million) if the same foreign exchange had been used entirely for ICE imports. Analysis also found that EV incentives under the previous government primarily benefited wealthier consumers, in a country where per capita income is less than $1,500 and vehicle ownership of any kind is out of reach for most households.
Rajan Dhakal, spokesperson for the NEA, offered a further rationale: electric cooking alone doesn’t significantly raise electricity consumption, because stoves are used only briefly in the morning and evening. “Electricity consumption is directly proportional to the household’s economic status — whether they can afford to use several other electric appliances from refrigerators to washing machines,” Dhakal said. In that reading, taxing higher-consuming households isn’t a barrier to mass adoption, he said; it’s a levy on those already able to afford it.
The government also faces a genuine grid investment challenge. Nepal’s total installed generating capacity reached 3,591 MW at the end of FY 2024-2025, with 434 MW added that year alone and more coming online. National peak demand, meanwhile, stands at 2,409 MW. The country needs 13,468 MW to meet projected domestic demand by 2035 and has set an export target of 15,000 MW — ambitions that require transmission upgrades the current tariff structure can’t fund.
An engineering study by researchers at Tribhuvan University in Kathmandu found that voltage profiles on some distribution feeders could potentially worsen if a high enough number of households switch out their gas cooking stoves for electric induction ones, lending technical weight to the infrastructure concern even if engineers say the prime minister overstated the risk.
The announcement has drawn sharp opposition from across the energy and consumer rights spectrum. Successive governments have so far been more effective at expanding power generation than at encouraging households to transition away from fossil fuels, such as by switching to electric stoves, according to a 2025 review of Nepal’s four-decade energy policy. Instead of addressing the gap, the new tax appears to widen rather than close, critics argue.
Former energy minister Kulman Ghising, credited with ending Nepal’s 12-hour daily power cuts when he led the NEA a decade ago, called the taxes counterproductive. “This discourages consumers from using electricity and the price of electricity should rather be lowered as far as possible in order to achieve the multiplier impacts it can create in the economy,” he said.
Energy expert Bibek Raj Kandel argued the government would collect far more revenue by expanding the consumption base than by taxing early adopters.
“Adding a tax right now creates a psychological barrier that actively discourages people from using more power. And honestly, the government isn’t even getting much revenue out of taxing early consumption at this level anyway.”
He called it a sequencing problem — “effectively putting the cart before the horse.” A 2023 study based on randomized data from 950 households in central Nepal found that monthly electricity costs and supply reliability are the two strongest determinants of whether households switch to electric stoves — providing quantitative support for that concern.
For households that have already made the switch, the tax arrives as an unwelcome burden. Ratna Paudel, a resident of Tilottama municipality, uses an electric stove, an EV she bought a year ago to replace her ICE car, and a home air-conditioning unit. “The new tax will cost me an additional 400 rupees [$2.60] per month — these are burdens and discouraging to use more electricity,” she said. Paudel is among 2.5 million consumers — 44% of the NEA’s total consumers — who meet the high-consumption criteria for the new taxes.
The announcement has also exposed fault lines within the government itself. With recent global hikes in liquefied petroleum gas, the main gas used for cooking in Nepal, the country’s projected LPG subsidy is expected to hit nearly 40 billion rupees ($264 million). A Ministry of Finance official with direct knowledge of the figures told Mongabay that replacing just 15% of LPG use with electric stoves could save roughly the same amount as what the electricity tax is expected to raise.
An independent analysis presented at the International Association for Energy Economics in 2025 found electric cooking to be 29% cheaper than with LPG in Kathmandu, and 39% cheaper on average across Nepal — supporting the direction of the trend even if not the precise number.
Just a week before the electricity tax was announced, Energy Minister Biraj Bhakta Shrestha endorsed a strategy document for increasing energy consumption, including special tariffs for farmers and energy-intensive industries, and subsidized electric cooking stoves for households.
During a parliamentary questioning session on June 1, opposition lawmaker Khusbu Oli accused the government of “robbing citizens” of cheap electricity. “Increased energy consumption contributes to multiplier effects in the economy but this is impossible now,” she said. In response, PM Shah warned that widespread adoption of electric stoves could overload the grid. “If we use induction stoves in all kitchens across the country, all transformers and the substations will explode,” he said. Engineers dispute the gravity of that claim.
Ghising, the former energy minister, said the existing power distribution system is sufficient for current demand levels, and noted that consumers aren’t using their stoves and charging their EVs all at the same time. An NEA technician added that overloaded transformers trip automatically and are quickly restored.
The Clean Infrastructure Investment Fee is negligible for vehicles priced below 2 million rupees ($13,300), but rises steeply beyond that: 90% for vehicles priced between 4 million and 5 million rupees ($26,700–$33,300), and 130% for more expensive ones. Gyanendra Bahadur Chand, CEO of MAW Vriddhi Auto Corp, the official distributor of Chinese EV brands Deepal and Changan, estimated that lower-priced EVs will be unaffected, but those in the 2 million to 4 million range will see price rises of hundreds of thousands of rupees, while EVs that cost more than 4 million rupees could see prices nearly double. Nepal imported more than 35,000 EVs since 2020, with the most recent fiscal year accounting for 45% of that total — a trajectory the new fees are likely to interrupt.
Following the backlash, government officials say they’re reconsidering consumer electricity prices, but intend to keep the VAT framework in place, leaving open the possibility of rates rising toward the full 13% in future years.
Shree Raj Shakya, a professor who heads the Center for Energy Studies at Tribhuvan University, said the stakes extend beyond household bills: “More electricity consumption can have a multiplier effect in the economy and generate more revenue than just collecting a few billion rupees from taxing electricity itself.”
He also pointed to falling electricity prices in India, where Nepal already earned 4.5 billion rupees ($30 million) from surplus power exports last year, as a growing threat to export revenue, making domestic consumers a more strategically important market than ever.
Banner image: Traffic in Nepal. Image by DonFilippo via Flickr (CC BY-NC-SA 2.0).
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Citations:
Bhattarai, S., & Maharjan, S. (2021). Impact analysis of residential induction cooking on medium voltage distribution network system: A case study of Nagarkot feeder, Bhaktapur, Nepal. Journal of Innovations in Engineering Education, 4(2), 49-55. doi:10.3126/jiee.v4i2.39008
Paudel, J., Sharifi, A., & Khan, G. D. (2023). What are the drivers of sustainable energy transition? insights from an empirical analysis of household preferences for electric induction cooking in Nepal. Journal of Cleaner Production, 417, 138021. doi:10.1016/j.jclepro.2023.138021
Cite this article
Rudra Pangeni (2026). Nepal’s new government bets on tax revenue over clean energy push. Mongabay Conservation news. DOI: https://doi.org/10.66709/news-322164
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