1. Income Tax
As stipulated in Income tax act, the applicable corporate tax rate for enterprises undertaking electricity generation is 20 %. GoN adopted a policy of tax rebate in Hydropower sector. 100% rebate on income tax for 10 years of operation for Hydropower project and 50% rebate on income tax for 11 – 15 years of operation for Hydropower project whose RCOD is before 2082- 12-30
Corporate Tax : 20%
Dividend Tax : 5%
Capital Gain Tax : 10%
2. Custom in Hydropower
GoN has adopted Custom duty, VAT & import duty exemption policy in importing of construction materials, tools and spare parts of hydropower project. Imported Steel plate/pipe, Plant, machinery and equipment are entitled to only 1 % custom charge and full exemption from 13 % VAT.
3. Value Added Tax (VAT) in Hydropower
The applicable VAT in Nepal for all sectors is 13%. However, Steel plate to build penstock pipe, Penstock pipe, Turbine, Machinery, Electromechanical Equipment (EM), Hydro mechanical Equipment (HM), Transmission Line related equipment etc required for the hydropower projects which are not produced in Nepal are exempted from the VAT on the recommendation from the Department of Electricity Development (DoED). Such projects can also apply for zero rate VAT to Inland Revenue Department. Other construction cost of project including engineering, civil etc. are compliance with 13 % VAT.
Moreover, GoN has announced to return Per MW NPR 0.5 crore of VAT amount that project paid for its Engineering, Transportation and Civil construction.
4. Royalty in Hydropower
A hydropower company shall pay the royalty as follows to Government of Nepal (GoN) after the commencement of electricity generation. There are two types of royalty called Capacity Royalty and Energy Royalty. From 1 MW to 10 MW projects the rate of royalty is as followings:
Capacity royalty | Energy royalty |
Yearly NRs. 100 per kW for the first 15 years of operation of project | Yearly 2 % of the total revenue for the first 15 years of operation of project |
Yearly NRs. 1,000 per kW for the 16 to 30 years of operation of project | Yearly 10% of the total revenue for the 16 to 30 years of operation of project |
