Traders in Nepal stop importing onions, vegetables from India after govt slaps 13% VAT

According to the financial bill introduced in Parliament on May 29, imported onions, potatoes and other vegetables and fruits will now be subjected to a 13% VAT.

Traders in Nepal on Tuesday said they have stopped importing onions, potatoes and other vegetables from India after the government slapped a hefty 13 per cent Value-Added Tax (VAT) on these items last month.

Opposition lawmakers have criticised the Nepal government's move, arguing that it would make low-income families vulnerable to food insecurity and increase the agony of people who are already hit hard by skyrocketing inflation.

According to the financial bill introduced in Parliament on May 29, imported onions, potatoes and other vegetables and fruits will now be subjected to a 13 per cent VAT.

Finance Minister Prakash Sharan Mahat has defended the move, asserting that it was intended to protect local farmers and trim imports.

Nepal imports almost all its onions from neighbouring India.

Last year, it imported 173,829 tonnes of onions from India.

Nepal grows potatoes that cater to around 60 per cent of local demand, while the rest are also imported from India.

Opposition lawmakers have lashed out at the finance minister, saying that the finance minister's argument that VAT was implemented to protect local farmers has little merit since Nepal is almost wholly dependent on India for its onions.

"Before the government introduced VAT, Kathmandu Valley would see anywhere between 700 to 1,000 tonnes of onions being imported from India on a daily basis," Keshav Upreti, a wholesaler at Kalimati Fruits and Vegetable Market, told PTI.

"In the last 10 days, onions have stopped coming from India," he said.

Upreti noted that there was a legal hassle as well when importing vegetables from India by paying VAT.

Not surprisingly, this scarcity of these essential vegetables has caused a surge in prices.

Onion prices, which used to cost Rs 50 per kg till last month, have now nearly doubled due to the acute scarcity.

The prices of potatoes have also surged by around 25 per cent, according to local traders in Kathmandu.

Prakash Gajurel, General Secretary of the traders association, said the Nepal government currently collects 9 per cent agricultural service tax and 5 per cent advance income tax.

“Adding 13 per cent VAT on top of these taxes will make kitchen ingredients very expensive,” Gajurel was quoted as saying by The Kathmandu Post newspaper.

Besides onions and potatoes, Nepal also imports brinjals, peas, garlic, beans and spinach from India.

Similarly, it also imports fruits such as avocado, apples, apricot, cherries, raspberries, cranberries, kiwis and mangoes from India.

The year-on-year price inflation touched 7.41 per cent in May, according to Nepal's central bank.

This stubborn and higher-than-expected inflation level, together with the imposition of VAT, has further eroded household's purchasing power and dragged growth in Nepal.