KATHMANDU: The terms ‘budget’ and ‘electric vehicles (EVs) tax’ have become nearly synonymous in Nepal. This is because each time the budget cycle approaches, whether during its preparation or review, rumors of EV tax hike spreads like wildfire.
In fiscal year 2022/23, such speculation began just five months into the fiscal year. As EV imports, particularly electric cars, surged, both government officials and business leaders fueled claims of rising prices. Government officials publicly claimed that the rapid growth in EV imports was hurting tax revenue for the government. At the same time, businesses amplified talk of tax hikes which resulted in a sharp spike in EV imports between December 2023 to March 2024. Some companies are still selling vehicles imported during that period.
Amid these rumors, the government leadership changed and Barsha Man Pun took over from Dr. Prakash Sharan Mahat as the finance minister in the first week of March 2024. The noise around EV tax hikes temporarily subsided. However, the budget for fiscal year 2024/25 introduced tax increases across multiple sectors, including a 10% rise on popular EV categories.
Stockpiling vehicles ahead of the budget is not a new phenomenon in Nepal. In the past, similar practices were common with petrol vehicles due to regular tax hikes. Stockpiling faded as taxes on ICE vehicle gradually stabilized.
In a market that sells about 10,000 EVs annually, some brands have imported more than 1,000 units-over 10% of the total market-in anticipation of tax hike through the budget for fiscal year 2025/26 which begins in mid-July. Speculation about another tax hike for the upcoming fiscal year started nearly four months ago and has drawn significant media coverage.
Globally, EV prices have dropped by nearly 15% in the past year. Some models available in Nepal has seen price reductions of up to 20% in import. Automobile dealers, however, have not passed these savings on to consumers. Instead, anticipating a rise in taxes, they have rushed to import large quantities of electric cars and vans.
Will the tax Increase?
Pre-budget speculation over tax hikes often creates opportunities for ‘grey market’ trading. Wealthy businesses take advantage by importing and stockpiling vehicles to sell them at higher prices after the new tax rates come into effect.
Most brands are now stockpiling enough vehicles to last the entire year. Based on budget trends for the past fiscal years, a dramatic hike in taxes, however, seems unlikely. Previous budgets raised EV taxes gradually, by about 10–15% annually, with some reductions in specific segments. However, since the current method of determining tax based on motor power has drawn criticism for being unscientific, a major reform in how EV taxes are calculated is expected this year.
Stockpiling on the rise
Stockpiling vehicles ahead of the budget is not a new phenomenon in Nepal. In the past, similar practices were common with petrol vehicles due to regular tax hikes. Stockpiling faded as taxes on ICE vehicle gradually stabilized.
Businesses tend to stockpile products to gain market share and maximize profits-benefiting themselves and, to some extent, consumers. However, from the government’s perspective, this behavior disrupts policy objectives and distorts the market. From a consumer standpoint, EV prices should ideally remain stable. Even if taxes rise, falling global prices should allow businesses to maintain current price levels.
In his comment after enforcing a 10-15% tax hike, Former Finance Minister Dr. Prakash Sharan Mahat had said that the decision raised revenue for the government without increasing market prices.
If the new budget follows a similar strategy, stockpiling may no longer be a profitable tactic for businesses. It could also curb such practices in the coming years.
