Nepali kitchens may have to do without potatoes and onions as traders have stopped importing these indispensable vegetables after the government slapped value-added tax (VAT) on them.

Consumer rights activists say a revenue-hungry government is taxing everything, and now it has even invaded the kitchen, making life harder for inflation-stricken Nepalis.

Finance Minister Prakash Sharan Mahat defended the move telling Parliament recently that imposing taxes on vegetables would discourage imports, and that it would not hurt consumers.

But agriculture traders associations are not buying that argument. They have submitted a memorandum to the Ministry of Finance urging it to roll back VAT on farm products as it was hurting consumers who are already suffering from rising prices.

According to Nepal Rastra Bank, food and beverage inflation stood at 5.54 percent in the first 10 months of the current fiscal year, with overall inflation reaching 7.41 percent.

Under the food and beverage category, the year-on-year price index of the spices sub-category increased 26.61 percent, restaurant and hotel 14.87 percent, cereal grains and their products 13.69 percent, and milk products and eggs 10.41 percent.

The financial bill has imposed 13 percent VAT on imported onions, potatoes, garlic, peas, frozen green leafy vegetables, collard greens, beans, spinach, sweet corn and other green vegetables.

Imported avocados, apples, quinces, apricot, cherries, strawberries, raspberries and cranberries, blueberries, kiwis and other fruits are also being taxed.

Traders at the Kalimati Fruit and Vegetable Market, Nepal’s largest vegetable and fruit marketplace, say they have not imported onions and potatoes after the government imposed VAT on them.

“It has been nearly a week since traders stopped importing onions and potatoes, but we have adequate inventory for now,” said Binay Shrestha, information officer at the Kalimati Fruit and Vegetable Market.

Prices of imported vegetables shot up immediately after the tax was imposed.

According to the board, the wholesale price of onion was Rs35 per kg on May 29, one day before the budget statement was issued. The board has removed onion from the price list on its website, but the vegetable now costs Rs80 per kg retail.

“We have removed onion from our daily price list of fruits and vegetables because traders have stopped importing them,” said Shrestha.

Nepal is almost totally dependent on India for its onion requirement as domestic production is negligible. The country imported 173,829 tonnes of onions worth Rs6 billion in the last fiscal year.

India is the world's biggest exporter of onions, a staple in South Asian cooking. Countries such as Bangladesh, Nepal, Malaysia and Sri Lanka all rely on Indian shipments.

The wholesale price of potato (red), which was Rs41 per kg, reached Rs45 per kg on Sunday.

“The current demand for potatoes is being fulfilled through local production," Shrestha said.

But during the monsoon when most of the country’s fields are covered with freshly planted paddy, the country depends on imported potatoes.

Import trends show that the country’s output falls short of the requirement. According to agro experts, Nepal was self-sufficient in potato production until a few years ago, but imports have been swelling of late.

Nepal imported 327,672 tonnes of potatoes worth Rs8.18 billion in the last fiscal year.

Nepal's ever-swelling agricultural imports hit the Rs400 billion mark in the last fiscal year ended July 16, 2022, prompting experts to warn that a farming country becoming so dependent on imported food indicates a full-blown emergency.

Apart from petroleum products, Nepal has become heavily dependent on the import of food, particularly from India due to faulty agriculture policies and mass out-migration of farm hands for better earnings abroad.

In 2001, the value of imports of food and farm products from India barely amounted to $11.84 million. As of the last fiscal, 20 years since then, the figure had bloated to $3.2 billion.

The price of green vegetables keeps fluctuating depending on production and seasonality.

“The price of green vegetables has not been impacted by changes in the tax system,” said Shrestha.

Ramesh Paudel, associate professor at the Central Department of Economics, Tribhuvan University, said the government imposed tax on some vegetable products with the intention of supporting local agricultural production and discouraging imports.

“The 13 percent VAT on selected vegetable products will not increase the price much. But there are chances of unscrupulous traders raising the price on the pretext of tax,” said Paudel, who is also a member of the National Planning Commission.

"VAT is just one reason for a rise in prices," he said. "The Department of Commerce, Supplies and Consumer Protection and the Inland Revenue Department should give attention to effective market monitoring so that consumers are not cheated on the pretext of VAT," he said.

“Traders might have halted imports of vegetables temporarily,” Paudel said. “Within a few months, everything will be back on track.”