Is electricity goods or service?

High voltage pylons in a beautiful landscape with colorful clouds in wintertime, taken in the Netherlands province Overijssel

Application of Withholding Taxes on Energy Sales

In practice, the consumers of the energy (both individuals and businesses) do not withhold taxes on payment for electricity consumption. There are not any fundamental reasoning on why market has adopted this practice. However, this could have come from the reasoning that electricity is goods and thus withholding requirement should not apply in the payment for goods. The Income Tax Directives and VAT Directives has not dealt specifically regarding the application of withholding taxes on energy sales. In practice it is generally accepted that withholding taxes doesn’t apply in the payment for goods. 
However, Section 89 of the Income Tax Act, 2058 assumes contract for “supply of goods” as a “contract” and there are several disagreements to this withholding requirement. View more detailed discussion on the topic here in my other blog: TDS on Payment for Goods: Nepal Tax Perspective. The requirement to withhold taxes on payment for goods under Section 89 is in contradiction of the general taxation and transfer pricing principles. 


Is electricity goods/service?

It is also relevant to discuss whether the electricity constitute as a goods or service. Internationally as a widely accepted understanding, electricity is treated as goods. This view originates from the theory that like any other goods electricity can be transmitted, transferred, delivered, stored, and possessed in the same way. Reference: Link to Manuscript
Even existing Consumer Laws and Tax Laws of Nepal has struggled to precisely define whether electricity is goods or service. In Nepal, Essential Goods Control Act, 2014 has defined electricity as goods. But Electricity Act, 2049 and Consumer Protection Act, 2075 defines electricity as service. Nonetheless many Courts around the world have followed the reasoning that electricity is goods. Further, “Electrical Energy” as a goods has also been listed in Unified Custom Tariff Banding – DoC (Updated 78/79) in Harmonic Code, which fits into the idea that Electricity is a good, and is subject to import and customs rule.