Nepal has taken one step forward and three steps back in promoting electric vehicles with a steep rise in the excise and customs duties in the new budget presented to Parliament by Finance Minister Yubaraj Khatiwada on Thursday.

Despite saying in his speech that the government would “encourage” electric vehicles, details of the budget give a completely different picture. The excise tax of only 10% on battery cars has now been raised to 40-60%, and on top of that there is another 60% customs duty.

The move also makes a mockery of Prime Minister K P Oli’s own declaration that “20% of vehicles in Nepal would be electric by 2020”. He made the announcement two years ago while inaugurating three electric buses for Sajha Yatayat. The government’s plan to induct battery-operated buses has also not got anywhere.

The move was greeted with dismay and outrage on social media by those who had expected the government to encourage the transition to electric vehicles in the post-coronavirus era. A Kia Niro that cost Rs6.5 million will now have a price tag of at least Rs9 million.

Electric vehicles had gained popularity in Nepal in the past few years with improvements in range on single charge and charging times of plug-ins. Their price was also competitive because diesel and petrol cars were taxed up to 260%. Under current rules, electric cars only had to pay 10% excise and 13%VAT and minimal customs duty. Now, the tax formula has raised the total tax to between 120-140% which would price battery cars higher than a petrol or diesel car of the same size.

Electric vehicles of peak power 50-100kW will now have to pay 40% excise, 50% if it is 100-150kW. The excise goes up to 60% for battery cars with peak power of 150-200kW.

Finance ministry sources said private electric cars were a luxury item that only well-to-do Nepali could afford, and in any case despite the tax rebate of the past five years importers of battery cars had not reduced the markup on the cars making them too expensive for most people.

The government is under pressure to make up for a drop in tax revenue due to the COVID-19 crisis, and the axe has fallen on the only hope to reduce air pollution and the import bill for petroleum. Importers of non-electric vehicles had also been lobbying with the government to scrap the tax incentives for plug-ins by competing firms.

Electric vehicles are being imported by Mahindra, Kia, Hyundai, MG, Peugeot, Audi and BYD. Other importers which were also planning to add electric cars to their showrooms will now cancel their orders.