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.”