Government looks to slash import tax on electric vehicles

• Follow

The Government of India is planning to cut import taxes on electric cars to as low as 40%, two senior government officials who didn’t want to be named told Reuters, as the discussions are still private. For imported electric vehicles (EVs) with a value of less than $40,000, which includes the cost, insurance and freight the government is looking to cut the tax rate from 60% to 40%, while for EVs valued at more than $40,000, the centre is looking to cut the tax rate to 60% from 100%, the officials said. The discussion comes just days after Tesla Inc’s appeal for a cut that polarised the country’s auto industry.

According to industry estimates, India is the fifth largest car market in the world with annual sales of about 3 million vehicles but the majority of the cars sold are priced below $20,000. EVs make up a fraction of the total and luxury EV sales are negligible.

Tax cut should have economic gain

Last month Tesla CEO Elon Musk tweeted that a local factory in India was quite likely if the company was successful with vehicle imports but taxes on them are high.

In a report by Reuters in July, Tesla argued that lowering import taxes on EVs to 40% would make them more affordable and increase sales. This triggered a public debate among automakers, whether such a move would contradict India’s push to increase domestic manufacturing.

One of the government officials said that reducing import duties is not a problem as many EVs are imported in the country. But, there should be an economic gain out of that-like manufacturing locally. Also, concerns of the domestic players need to be balanced along these lines.

The second official said that the duty cut is only meant for EVs and not for other categories of imported cars. Hence, this should not be a concern for domestic automakers that mainly manufacture affordable gasoline-powered cars.

He also added that India’s finance and commerce ministries as well as Niti Aayog chaired by Prime Minister Narendra Modi are discussing the proposal and all stakeholders will be consulted.

Tesla gets support from other automakers

For years automakers like Daimler’s Mercedes-Benz and Audi have for years lobbied for lower import tax rates on luxury cars but faced strong resistance mainly from domestic companies. As a result, India’s luxury car market has remained small with average sales of around 35,000 vehicles a year.

Tesla’s cars would fall into the high-end EV category, which is mainly imported into India and account for a much small percentage of sales. Mercedes, Jaguar Land Rover and Audi sell imported luxury EVs in the country.

This time around Tesla’s demand has found support from Mercedes as well as South Korean automaker Hyundai Motor, which has an 18% share of India’s car market.

Opposing the proposed tax cut is Tata Motors which manufactures affordable electric cars in the country and Softbank Group-backed Ola, which is making electric scooters in India.