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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 US-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.
