Policy flip-flop puts brake on speeding EV market

While there is still strong demand for electronic vehicles (EVs), the government policy fluctuations not only raise questions about the country’s commitment to an environment-friendly transport system but also EV business. 

the HRM
The good news: Electric Vehicles (EVs) imports jumped a whopping 709 percent in FY 2021/22.

The bad news: Except for EVs up to 100 kW, the imports of EVs above 100 kW declined sharply in the first month of FY 2022/23.

With sales almost stalling, Paramount Motors, the authorized dealer of MG Motors in Nepal, recently requested the Chinese manufacturer of MG to manufacture EVs below 100 kW. Paramount Motors which had recorded strong sales in the last fiscal year, has been struggling to maintain that position following the government’s decision to change the customs tariff on electric vehicles (EVs). The company has been selling two variants of MG EV – 114 kW and 124 kW. With the new tariff structure, which came into effect in mid-July, importers of EVs above 100 kW capacity have found themselves surrounded by uncertainties to continue their business.

However, it is a boom time for those selling EVs up to 100 kW capacity EVs. The current fiscal year’s first month’s vehicle import data clearly shows this picture. While the overall imports of EVs jumped sharply in July-August (Shrawan) compared to the same month of last fiscal, there has been a sharp decline in the imports above 100kW.

The decline in EV business was expected after the government announced to levy excise duty on top of the existing customs duty in the federal budget for FY2022/23. As a result, only 6 units of EVs above 100 kW have been imported this year, as per the statistics of the Department of Customs. On the other hand, the imports of EVs up to 100 kW jumped by almost five times to 205.

Policy Instability 
The government policy of excise duty waiver and low customs duties along with auto loans up to 80 percent offered by banks and financial institutions have been instrumental in the expansion of the EV market in Nepal in recent years.

Nevertheless, the government policy flip-flop over the last two years has been seen as an obstacle to this growth.

Presenting the budget for FY2020/21, the then Finance Minister Dr. Yubaraj Khatiwada imposed excise duties ranging from 30-80 percent on EVs, depending on the capacity of the motors used in the vehicles. Customs duty was fixed at 60 percent. As a result, market prices of EVs nearly doubled rendering environment-friendly vehicles less competitive than internal combustion engine (ICE) vehicles. The arrangements in the budget negatively impacted the EV market as imports were down by half in FY 2020/21. The change in Finance Ministry leadership in October 2020 with the appointment of Bishnu Paudel brought some relief to the EV market. In the budget for FY2021/22, Paudel not only removed the excise duty on the import of EVs but also rolled back the customs duty to 10 percent. He also announced that Nepal planned to shift from ICE light vehicles to electric vehicles by 2031 and unveiled a strategic plan to lower fuel imports.

The market responded positively as EV importers resumed vehicle imports. Thanks to the government’s decision to abolish excise duty and slash customs duty on imports of electric vehicles, there was a humungous growth in the imports of electric vehicles, primarily cars, and jeeps, in the last fiscal year. The imports jumped to 1,807 units in FY2021/22.

However, the joy was short-lived as Finance Minister Janardan Sharma in the budget for FY2022/23 again imposed the taxes. The government levied excise duty on top of the existing customs duty on electric vehicles above 100 kW capacity. This, according to automobile importers, has made electric vehicles costlier for buyers.

In Finance Bill for the current fiscal year, the government has imposed a 30 percent excise duty on vehicles with 100-200 kW motors. Similarly, the government has imposed a 45 percent excise duty on importing electric vehicles with electric motors of 201-300 kW capacity. For vehicles with more than 300 KW motor capacity, excise duty has been maintained at 60 percent.

Automobile dealers argue that the government’s current policy on electric vehicles is irrational. “As public vehicles emit more carbon, the government should have provided subsidies on the import of electronic buses to be used as public vehicles. As the duty is high, investors will not invest more on electric buses if the current customs and other policies are not revised,” said one leading automobile dealer, “This is why the sales of high-powered EVs have already taken a hit this fiscal year.”
According to dealers, given the tariff structure, this year will see a surge in the sales of EVs up to 100 kW. However, the same cannot be said about EVs above 100 kW. According to Dhruba Thapa, president of the Nepal Automobile Dealers’ Association (NADA), the government policy, on one hand, contributed to the expansion of EVs in Nepal, and in another hand, stalled the growth of the market.

“In previous years, customers purchased EVs above 100 KW as the duty was the same for vehicles of all types of motor capacity,” said Thapa, “Given the duty differential now, the demand for EVs above 100 kW will decline further this year.”

The budget announcement has hit those who’ve been importing EVs above 100kW. According to Paramount Motors, authorized dealers of MG in Nepal, they had to cancel the bookings of around 100 MG EVs after the implementation of the budgetary arrangements. In Nepal, MG EVs were imported in two models – 114 kW and 124 kW capacity. Due to the new tariff structure, the price of MG EV which was previously available for Rs 5 million, has gone above Rs 7 million.
The same is the story of Laxmi Intercontinental which deals with Hyundai EVs. The price of the IONIQ-5 EV has gone up to Rs 10 million from earlier Rs 8.1 million.

Growing Market
The annual foreign trade statistics issued by the Department of Customs show Nepal imported electric cars and SUVs mainly from six countries, namely India, China, South Korea, United States, Japan, and France.

In FY 2021/22, China topped the list of EV source countries for Nepal. Nepal imported 823 units of electric vehicles worth Rs 2.45 billion from its northern neighbor. Similarly, the country imported 696 electric vehicles worth Rs 1.73 billion from India. Last year, the government collected overall revenue worth Rs 1.43 billion from electric vehicle imports.

In the last fiscal, 996 units of electric vehicles of up to 100 kW capacity were imported. Similarly, 792 units of electric cars from 100 kW to 200 kW, 13 units from 100 kW to 150 kW, two units up to 300 kW, and four units from 200 kW to 300 kW were also imported in FY 2021/22.

Nepali automobile dealers have been importing EVs of US brand Tesla, European brands Audi, Jaguar, MG (now Chinese owned) and Peugeot, Korean brand Hyundai and Kia, Japanese brand Nissan, and Indian brand Tata.

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