Understanding Nepal’s EV Tax Policy: Problem with Motor Power-Based Taxation

Picture: Deputy Prime Minister and Finance Minister Bishnu Paudel is presenting the budget for the next financial year (2082/83) in Parliament.

The government of Nepal imposes four primary forms of taxes on companies that import vehicles, including electric vehicles. These taxes fall into the following categories:

1. Custom Duty (CD)

The CIF value of the car is subject to primary import taxes. CIF Value is the overall cost that includes freight or transportation costs, insurance costs, and the cost of the products. Tax rates differ depending on the type of vehicle. For example, if the vehicle is an internal combustion engine (ICE), the tax rate is determined by the engine's capacity; if it is an electric car, the tax rate is determined by the motor's peak power.

2. Excise Duty

The government levies an indirect tax known as excise duty on the manufacture, import, or sale of particular goods that are deemed luxury, non-essential, or resource-intensive. Excise duty is imposed in addition to standard custom duty on imported automobiles, including electric vehicles (EVs), in order to control consumption and make money.

3. Road Development Tax (RDT)

RDT is gathered in order to finance road upkeep and building. All imported vehicles, whether ICE or electric, are subject to this specific use indirect tax. The Road Development Tax (RDT) on imported vehicles in Nepal is set at 5% of the CIF (Cost, Insurance, Freight) value of the vehicle for the fiscal year 2082/83 (2025/26) and is collected at the time of vehicle import during customs clearance. These values are based on the CIF Value (Cost, Insurance, Freight) of the vehicle, typically around 5% of the CIF Value (subject to revision in annual budget policies).

4. Value Added Tax (VAT)

The standard value added tax (VAT) is imposed at 13% on the whole taxable value. Total taxable value is the sum of CIF value, customs duty, excise duty, and RDT. The final cost to the importer, including VAT, contributes to the vehicle's market price.

Tax Categories Based on Motor Peak Power of Electric Vehicles for Fiscal Year 2082/83

VAT=13%, RTD=5%

Flaws in the tax policies based on the motor power

In Nepal, customs and excise duties on electric vehicles (EVs) are currently based on motor peak power (kW), with higher-powered EVs facing higher tax rates. This approach assumes that greater motor power represents luxury, similar to how engine size defines luxury in fuel vehicles. However, in the case of EVs, higher motor power is not about luxury—it’s a functional necessity. Higher motor capacity allows for longer ranges (400–500 km), supports heavy loads, manages steep terrains, and enables commercial usage. This is especially important in Nepal’s hilly geography and for long-distance intercity routes.

By taxing high-powered EVs more heavily, the government is unintentionally restricting the adoption of vehicles best suited for Nepal’s needs. This policy increases vehicle prices, adds to range anxiety, and discourages fleet operators from transitioning to electric mobility.

International Practice

Internationally, EV taxation policies are designed to promote adoption by targeting battery capacity, emissions, or vehicle type rather than penalizing functionality.

In China, qualified New Energy Vehicles (NEVs)—including battery electric (BEV), plug-in hybrid (PHEV), and fuel cell vehicles (FCEV)—have enjoyed a full exemption from the 10% purchase tax since 2014, a policy recently extended through 2027 (Ministry of Finance China, 2023). While direct consumer subsidies (previously up to RMB 30,000, based on range and battery size) were phased out by end-2022, local incentives and tax breaks remain key drivers of EV adoption.

India incentivizes EVs with a 5% GST rate (compared to 28% + cess for ICE vehicles) and subsidies under the FAME II scheme (FAME India, 2023). Two- and three-wheelers receive ₹10,000/kWh (capped at 40% of vehicle cost), while electric cars qualify for ₹15,000/kWh (max ₹1.5 lakh per vehicle). The program targets 1.5 million EVs by 2024, emphasizing affordability and local manufacturing.

Norway, a global leader in EV adoption, exempts zero-emission vehicles from 25% VAT and import duties (up to NOK 500,000; excess amounts are taxed) and waives registration fees (Norwegian EV Association, 2024). Additional perks like toll discounts and bus-lane access—now being phased due to high adoption—further boosted early uptake.

These policies highlight a global shift toward emissions-based incentives rather than restrictions on vehicle performance, accelerating the transition to sustainable mobility.

Conclusion and recommendation

Nepal stands at a critical juncture in its electric mobility transition. While the country has taken positive steps—most notably with the Environment-Friendly Vehicle and Transport Policy (2014)—inconsistent implementation and regressive fiscal practices have slowed progress. Taxation based on motor peak power, rather than emissions or utility, undermines the adoption of high-capacity EVs essential for Nepal’s hilly terrain and long intercity routes. Recent policy changes, such as a 5% hike in excise duty for sub-50kW EVs and the reduction of financing margins from 80% to 60%, have created additional hurdles. These contradict global trends where EV taxation is aligned with environmental outcomes—China offers full tax exemptions for qualifying EVs, India imposes only a 5% GST on EVs (compared to 28% on ICE vehicles), and Norway exempts EVs from VAT entirely, encouraging rapid uptake.

To ensure Nepal does not fall behind on its sustainability commitments and regional competitiveness, urgent reforms are required. The Nepal Automobile Dealers' Association (NADA) has recommended stabilizing EV tax structures, expanding charging infrastructure through public–private partnerships, and implementing battery recycling and service standardization frameworks [NADA, 2023]. Likewise, researchers from the Institute of Engineering, Tribhuvan University advocate for harmonizing fiscal policies and enhancing EV financing to support broader adoption [IOE TU, 2025]. While Nepal’s existing policy framework provides a foundation, weak execution and short-term fiscal decisions have led to fragmented outcomes. A long-term, functional approach—focusing on vehicle performance, terrain adaptability, environmental benefit, and consumer affordability—is essential for meaningful EV transition.