Govt mulls VAT subsidy on hydro construction materials

- SANJEEV GIRI, Kathmandu

May 27, 2014-

The Ministry of Energy has proposed the Finance Ministry to provide subsidy on value added tax (VAT) for the construction materials purchased by the hydropower projects based on Rs 10 million per megawatt.

Energy Minister Radha Gyawali on Tuesday revealed that her ministry made such proposal with a view to including it in the next budget in order to encourage the private sector investment in the power sector.

Speaking at the inaugural session of a workshop on Hydropower Sustainability in Nepal, organised jointly by the International Hydropower Association and Nepal Hydropower Association, Gyawali said the move is seen as an incentive to the private sector for more investment in hydropower, more so at a time when the country has been facing energy crisis.

Although the government had announced providing such subsidies based on Rs 1 million per megawatt, it had failed to implement the policy.

According to a senior official of the finance ministry, despite the subsidy announcement in the previous budget, lack of allocation of resources for the purpose prevented them from implementing the facility.

The government, in response to the proposal, has formed a three-member committee led by a joint secretary of the ministry to study on whether it would be appropriate to provide the subsidy as demanded. The committee compromises a representative each from the finance ministry and Investment Board.

A finance ministry official said the government will then decide on whether to provide VAT subsidy based on the recommendation of the committee. “We have expect the recommendation soon since we are preparing to introduce the budget for next the fiscal year within the next three weeks,” said the official.

 The private sector is optimistic towards the government’s initiative to provide VAT subsidy. Khadga Bahadur Bisht, president of Independent Power Producers Association of Nepal, said they were hopeful that the subsidy policy would be implemented this time around. “We have had several discussions with the government on this issue, and based on the response we got during the discussion we look forward to the government’s position,” said Bisht.

According to Senior Energy Specialist at World Bank Rabin Shrestha, Nepal has energy deficiency of 44 percent, which is far higher compared to other South Asian nations including Pakistan (30 percent), Bangladesh (26 percent), India (11 percent) and Sri Lanka (10 percent).

A World Bank report states that Nepal falls short of $13-18 billion in order to bridge the investment gap in infrastructure between 2011-2020, however, the biggest gap remains to be the energy sector.

Published: 28-05-2014 08:59

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