Kathmandu, June 3

Prices of petrol and diesel in the domestic market have increased by 9.7 per cent and 12 per cent through the five revisions in the last three months (from April 2 to June 2) to Rs 113 per litre and Rs 95 per litre, respectively. Price of aviation turbine fuel was also increased during the recent revision.

The government has been allowing Nepal Oil Corporation — the state-owned petroleum giant — to revise fuel prices almost every fortnight based on the international market trend. However, the fuel price hike will have an adverse impact on the economy.

“The hike in diesel price subsequently affects the livelihood of people, along with the increase in public transportation cost, as transportation cost affects the price of all commodities, including daily consumable groceries and vegetables,” said Nara Bahadur Thapa, executive director at Research Department of Nepal Rastra Bank.

“To put it in simple words, the cost of living will be high.”

Based on the volume of sales, NOC has been claiming that the loss on diesel cannot be cross-subsidised from the profit of other commodities as the volume of sale of petrol, kerosene and ATF is low. Moreover, NOC has also been facing the loss on sale of liquefied petroleum gas.

The domestic airline companies have also planned to revise their fuel surcharge, along with the latest revision in price of ATF. Public
transporters will also revise transport fares as the price of diesel has increased substantially.

While fixing the public transportation fare, fuel price has weightage of 35 per cent, according to transport entrepreneurs.

NOC has been making adjustments in fuel prices almost every fortnight in accordance with the automatic pricing mechanism that
allows it to review prices of petroleum products every fortnight by up to two per cent against the prices of finished petroleum products supplied by Indian Oil Corporation.

However, the automatic pricing mechanism was almost defunct when the fuel price was rampantly falling in the international market.

In the beginning, the government allowed NOC to keep the fuel price high to clear its outstanding debt burden. Even after having cleared the dues NOC did not revise fuel prices as per the international market and generated billions of rupees in profit.

NOC has been collecting Re 0.50 on the sale of each litre of petrol and diesel for price stabilisation fund and the government is levying five rupees on sales of each litre of petrol, diesel and ATF to develop the Budhigandaki hydel project.

Apart from this, in the past when the fuel price was falling, NOC had collected a substantial amount from consumers to develop its infrastructure, such as the expansion of petroleum depots. NOC has so far collected around five billion rupees in the price stabilisation fund, which was established to safeguard consumers from the sudden rise in fuel price in the international market.

On the other hand, despite a substantial increase in the sale of petroleum products NOC has been collecting Re 0.60 on the sale of each litre of petroleum products and Rs 8.52 on the sale of each cylinder of cooking gas for administrative charges, which should have been revised along with the rise in the volume of sales.

Kathmandu, June 3

Prices of consumer items will rise in the coming days following upward revision in taxes of a host of goods and services ranging from food items and essentials, such as cooking gas and communications service, to construction materials and home appliances.

The price hikes, brought about by a change in tax rates or withdrawal of tax rebates, are likely to make it difficult for the government to contain inflation at 6.5 per cent in the next fiscal as proposed by the budget for 2018-19.

The government has said VAT will soon be levied on goods and services sold by restaurants, bars, discotheques, health clubs, massage and beauty parlours, educational consultancies, food caterers, tailors and dry-cleaners located in metropolitan cities, sub-metropolitan cities, municipalities or any area specified by the government. Shops located in these areas that sell hardware, sanitary items, furniture, electronics, marbles, automobiles and motor parts will also have to collect VAT.

This means sellers of goods, whose annual transaction is less than Rs 5 million, and sellers of goods-cum-services, whose annual transaction is less than Rs 2 million, will have to come under VAT’s network, Revenue Secretary Sishir Kumar Dhungana said. This provision will make goods expensive in urban areas.

Other items used widely in urban areas, such as LPG cylinders, refrigerators, vacuum cleaners, mixers, grinders and juicer machines, will also become dearer soon, as the government has imposed five per cent excise duty on these items for the first time.

Food items generally consumed in urban areas, such as chewing gum, potato chips, dalmoth, papad, bhujiya, juice and energy drinks, will also witness price hike soon as the excise on these goods has either been introduced for the first time or revised upwards. For example, 10 per cent excise has been introduced on chewing gums, while energy drinks have been subject to excise of Rs 25 per litre. Excise on potato chips has been raised from Rs 7.5 per kg to Rs 15 per kg and excise on juice has gone up from Rs 4.5 per litre to Rs 10 per litre.

Among others, excise duty on cement has been revised to Rs 200 per tonne from Rs 180 per tonne, excise on paints has jumped from five per cent to seven per cent, and that on steel bars and window and door frames made of iron stand at Rs 1,500 per tonne.

Earlier, the highest excise rate levied by the government was 60 per cent which has gone up to 100 per cent. The government levies 100 per cent excise on motorcycles with engine capacity of over 800cc, cars and station wagons with petrol-powered engines of over 3,000cc, and cars and station wagons with diesel-powered engines of over 2,500cc.

The government has also stopped providing 50 per cent customs duty rebate on imports of crude soybean, palm and sunflower oil. These items will be subject to five per cent customs duty. Also, imports of mustard seed and rapeseed will be subject to the customs duty of 10 per cent, up from one per cent.

However, 50 per cent customs duty rebate will be provided on imports of sunflower and soybean seeds as before.

The government has also abolished VAT refund on sugar, flour, vegetable ghee, cooking oil, mobile phone sets, textile and dairy products. Also, telecom service fee has been raised to 13 per cent from 11 per cent, making telecom service expensive.

“Although inflationary pressure will build due to an upward revision in tax rates, we hope to contain inflation at an average of 6.5 per cent, as prices of some of the goods and services are likely to fall as well,” said Nara Bahadur Thapa, executive director of Nepal Rastra Bank. Education and healthcare costs are likely to fall marginally in the coming days, as the government has abolished one per cent education tax and five per cent health service tax and removed health service from the VAT network.

Higher inflation on cards, as…

• Many service providers in metropolitan cities, sub-metropolitan cities, municipalities will come under VAT network
• Five per cent excise duty to be levied on LPG cylinders, fridges, vacuum cleaners, mixers, grinders and juicer machines
• Rs 200 excise duty to be levied on a tonne of cement
• Rs 1,500 excise duty to be levied on a tonne of steel bars
• Fifty per cent customs duty rebate on imports of crude soybean, palm and sunflower oil scrapped
• Telecom service fee raised to 13 per cent