Nepal Finance Minister Yubaraj Khatiwada’s announcement in his annual budget speech on 28 May to increase the tax on electric vehicles five-fold has met with public outrage on social media, and a barrage of criticism from environmental groups and proponents of renewable energy.
Khatiwada went against President Bidya Devi Bhandari’s speech to both houses of Parliament last week in which she stated his own government’s policy to promote electric transportation. In fact, Bhandari drove to Parliament in her recently acquired electric BYD.
The finance minister justified his decision in a post-budget press conference on Thursday saying: “Only expensive electric vehicles were being imported, and the existing subsidy only benefited a specific class of people, while the government lost tax revenue.”
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But electric vehicle importers said Khatiwada’s statement was incorrect on many levels. In an interaction on Sunday, they said Nepal’s middle class was finally able to afford to buy a car because of the subsidy and also because of the accumulated savings in fuel over the years. They said the foreign exchange outflow would actually increase because the hefty tax hike on electric cars would increased consumption of fuel and vehicle imports.
“I switched to importing small electric vehicles that motorcycle users could graduate to, and I based my decision on the government’s tax subsidy on battery-powered cars. But this budget will now nearly double the price of the car, and it will be out of reach of the middle class that could finally aspire to owning a car,” said one electric vehicle importer.
He added: “If there is no continuity in government policy, and there is such a dramatic policy departure no investor in their right mind is going to put money in Nepal.”
Four years ago, the government had scrapped excise tax on electric vehicles, reduced import duty to only 10% and waived the annual Rs35,000 road tax on electric vehicles. The subsidies, and a new generation of battery technology that lowered cost and improved the range of electric vehicles, meant that sales took off. In the past year alone, 500 new electric cars have been sold in Nepal.
Now, the excise tax has been raised to 30-80% depending on the peak power capacity of the car, and the customs duty also to 80%. Although there is provision for 50% of the customs duty to be reimbursed and the tax on electric vehicles are still lower than for petrol or diesel cars, the higher price of electric vehicles means that they will now be much more expensive than a petroleum vehicle of similar size.
“In strictly cash terms a car that cost Rs 4million will now cost Rs 8million,” says Umesh Shrestha of the Electric Vehicles Association of Nepal (EVAN). “This decision will undo a policy that had put Nepal far ahead of neighbouring countries.”
One of the reasons manufacturers of electric vehicles like KIA and Hyundai had given Nepal priority for shipments even though the volume was small because of the tax subsidy made battery-powered cars competitive with petrol cars.
“We were able to convince manufacturers that Nepal was ready to go electric because of our hydropower potential and the tax difference between electric and non-electric vehicles that proved there was strong government commitment to promote electric vehicles,” explains Nirakar Shrestha of Laxmi Intercontinental which represents Hyundai in Nepal.
All this does not even take into account the improvement in air quality if even some of the diesel and petrol vehicles in Nepal’s cities were replaced by battery-powered cars. The number one complaint of tourists on TripAdvisor and Lonely Planet is Kathmandu’s air pollution.
Then there is the larger question of reducing Nepal’s burgeoning petroleum imports from India (see graph) by switching even partly to electric vehicles. This would reduce the import bill, and use domestically generated hydroelectricity that is in danger of being wasted.
Kulman Ghising of the Nepal Electricity Authority (NEA) has been trying to urge the public to switch to electric cooking stoves and to buy electric cars to use up surplus hydroelectricity. NEA is more than doubling its current generation capacity by adding another 1,300MW of hydropower in the coming fiscal year.
The government’s decision to raise taxes is expected to drive people away from electric vehicles, and could not have come at a worse time. Especially during the current lockdown, Nepal’s electricity supply has outstripped demand. As a result, hundreds of megawatts are unused and wasted.
Of the 1,300MW currently produced, peak consumption has dropped to 700MW, with night time consumption as low as 450MW. A lot of the energy produced is therefore ‘spilled’. With no notable change in demand and with supply doubling, much more energy will be wasted and NEA will lose money on every wasted watt.
Meanwhile, the US-funded Millennium Challenge Corporation (MCC) project is stuck because of infighting between factions in the ruling Nepal Communist Party, the transmission lines that were supposed to evacuate power from new power-plants in central Nepal to meet growth in urban demand and even export to India may now not materialise.
Ghising had been publicly appealing to the government to introduce policies that encouraged electricity consumption, including reducing the tax on electric appliances, increasing electric vehicle ownership and investing in fast-charging stations along the highways. But Finance Khatiwada last week did just the opposite.
“The government’s decision is dangerous from financial, environmental and energy standpoints,” says environmental activist Bhushan Tuladhar.
Two factors have been cited as reasons behind the decision to hike taxes on e-vehicles: a weakening of the government’s revenue base as a result of the COVID-19 lockdown, and its reliance on taxation of fuel in order to meet its expenditure. A third factor could be lobbying by the country’s powerful fossil fuel mafia.
“It was not economically justifiable that fuel-based cars paid 300% in taxes and luxury electric vehicles were exempt,” argued Finance Secretary Shishir Kumar Dhungana.
But evironmentalists have accused the government of backing down from its own international commitments well. The Ministry of Physical Infrastructure and Transport had laid down goals for the electrification of transport in its ‘Nationally Determined Contribution’ to meet global targets for the reduction of carbon emissions and the ‘National Action Plan for Electric Mobility’ in 2017.
Some of the goals set included a 20% electrification of transportation by 2020 and reducing fossil fuel dependence in the transport industry. The tax on electric cars directly contravenes these commitments, and goes against everything the government stood for in the past four years.
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