Why are EV piling up at Nepal’s customs? Traders face policy uncertainty

KATHMANDU: Nepal’s ambitious push toward a greener future is hitting a roadblock as hundreds of electric vehicles (EVs) remain stranded at customs points, creating a bottleneck that has left traders and importers frustrated. Despite a surge in EV imports, driven by government incentives and rising fuel costs, inconsistent policies and regulatory disputes are causing significant delays, with vehicles piling up at border points like Tatopani and Rasuwagadhi.

The Department of Customs data reveals a remarkable 66.39% increase in EV imports in the first nine months of the current fiscal year compared to the previous year. In the first six months alone (mid-August 2023 to mid-January 2024), Nepal imported 5,107 EVs valued at NPR 12.73 billion, a sharp rise from 1,749 units worth NPR 4.92 billion in the same period last year. This growth aligns with Nepal’s Nationally Determined Contributions, aiming for EVs to comprise 25% of private passenger vehicle sales by 2025 and 90% by 2030. However, the influx of EVs has overwhelmed customs processes, exacerbated by fluctuating tax policies and administrative disputes.

A key issue is the inconsistency in how customs officials classify vehicles, particularly regarding seating capacity. For instance, Thee Go, an EV importer, has faced challenges at Tatopani Customs, where officials classified their 11-seater microbuses as nine-seaters due to foldable seats, increasing the tax rate from 1% to 11%. “Until now, the folding seats of all the company’s vehicles were counted as regular.

But now our vehicles are being taxed differently. We do not think it’s fair,” said Rajan Rayamajhi, CEO of Thee Go. This discrepancy could raise Thee Go’s tax liability by NPR 25 million, potentially disrupting the budding EV market. Meanwhile, Rasuwagadhi Customs has allowed similar vehicles to pass with a 1% tax, highlighting a lack of uniformity across border points.

Traders also point to the government’s fluctuating tax policies as a major hurdle. While EVs previously enjoyed a low 10% customs duty and 13% VAT, the current fiscal year introduced higher duties based on motor capacity, ranging from 10% for under 50 kW to 60% for over 300 kW.

These changes have increased prices for some models, such as the Hyundai Ioniq-5, which jumped from NPR 8.2 million to NPR 10.6 million, dampening consumer demand. “Despite a rise in inquiries for EVs, sales conversion is low due to lack of loanable funds with banks,” said Sandeep Sharma, marketing manager of Laxmi Intercontinental, Hyundai’s distributor in Nepal.

The pile-up at customs also reflects broader economic challenges. Banks, facing a liquidity crisis, are limiting auto loans, which typically cover up to 80% of vehicle costs. With 95% of car buyers relying on financing, higher interest rates and restricted lending have slowed sales, leaving imported EVs stuck at borders. Additionally, global supply constraints, particularly for high-demand models from South Korea and China, have delayed deliveries, further complicating the situation.

Auto dealers and environmental advocates are urging the government to stabilize policies to support Nepal’s green transition. Dhruba Thapa, president of the Nepal Automobile Dealers’ Association, emphasized the need for consistent regulations: “Government policy has definitely contributed to the proliferation of EVs in Nepal, but ever-changing rules create uncertainty.” As Nepal aims to reduce reliance on fossil fuels and promote zero-emission transport, resolving customs disputes and streamlining tax policies will be crucial to sustaining the EV boom and achieving its ambitious climate goals.