Biratnagar: Nepali industrialists and business leaders have expressed concern that India’s decision to reduce its Goods and Services Tax (GST) structure from five tiers to just two will have a negative impact on Nepal’s economy.
They fear that India’s new tax policy will make essential consumer goods significantly cheaper in Indian markets, fueling increased smuggling into Nepal and leaving legitimate cross-border trade through customs checkpoints nearly stagnant.
India previously levied GST rates of 18 percent and 12 percent on daily consumer goods. Under the new system, those rates have been cut to just 5 percent, resulting in a sharp decline in consumer goods prices across India.
The 56th meeting of India’s GST Council approved the restructuring, streamlining GST into two categories — 5 percent and 18 percent — down from the earlier five rates of 0 percent, 5 percent, 12 percent, 18 percent, and 28 percent. The new GST rates will take effect from September 22.
According to Nanda Kishore Rathi, President of the Morang Industries Association, while consumer goods will become cheaper in India, Nepal will continue to impose a 13 percent Value-Added Tax (VAT) along with customs duties, making the same products more expensive locally. This, he warns, could significantly increase the risk of smuggling.
“Even now, the grey market operates in parallel,” Rathi said. “With Indian goods becoming cheaper, illegal imports will rise further. This will ultimately harm Nepali industries, revenue collection, and the overall economy.”
He added that Nepali industries producing essential goods face heightened challenges under India’s new policy. Without tax reforms, businesses may be forced to halt production and resort to buying and selling smuggled Indian goods instead.
Although some raw materials imported from India may benefit from the revised GST, Rathi noted that overall production costs in Nepal will still be higher than in India, diminishing any advantage.
Anil Sah, Senior Vice President of the Morang Chamber of Commerce and Industry, echoed similar concerns, warning that smuggling will dominate Nepal’s market under India’s cheaper GST regime.
“Due to Nepal’s customs valuation and VAT system, consumer goods are already more expensive compared to India,” Sah said. “Now, with India’s GST changes, smuggled goods will overwhelm the Nepali market.”
He cautioned that unless the government reforms customs valuation and VAT policies, the country’s legitimate trade could collapse.
Sah also stressed that cross-border traders, already under pressure from smuggling, will face an even deeper crisis under the new Indian tax regime.
Nepal currently implements a single-rate VAT of 13 percent, unlike India’s multi-tier GST. Nepal’s private sector has long demanded a multi-rate VAT system to ease market pressures. However, while India has simplified its tax structure by reducing GST tiers from five to two, Nepal has yet to revise its system.
India has also introduced zero-GST on certain goods and exemptions on others under the new structure.
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