Govt sets low GST rate for electric vehicles to boost sales, but it’s not enough

A GST rate of 12% for electric vehicles, as compared to 28% for cars, is low, but a tax waiver would have resulted in some consumer base, say experts

Gireesh Chandra Prasad, Mayank Aggarwal
Updated23 May 2017
Electric vehicles, including two- and three-wheelers, will be taxed at a 12% GST rate against a 28% tax plus cess for petrol and diesel cars and hybrid vehicles. Photo: Aniruddha Chowdhury/Mint
Electric vehicles, including two- and three-wheelers, will be taxed at a 12% GST rate against a 28% tax plus cess for petrol and diesel cars and hybrid vehicles. Photo: Aniruddha Chowdhury/Mint

New Delhi: Sending a clear signal that India is firmly moving towards electric vehicles, the goods and services tax (GST) Council has set a 12% tax rate for electric vehicles, compared with 28% plus cess for petrol and diesel cars and hybrid vehicles.

The move has, however, got mixed response from those campaigning for sustainable mobility solutions and the automobile industry.

Last week, the council announced rates of GST and, according to them, cars will attract a rate of 28% with a cess ranging from 1% to 15%.

GST on cars: What gets cheaper, costlier

Large cars with a capacity to carry 10-13 persons, sport utility vehicles that are more than 4 metres long and have an engine capacity of more than 1,500cc, as well as mid-segment hybrid cars with engine capacity less than 1,500cc will bear a 15% cess over and above the 28% GST rate. In the case of small petrol cars up to 1,200cc and diesel cars up to 1,500cc, the cess is 1%.

Interestingly, compared with the 15% cess for hybrid cars, aircraft for personal use and yachts used for pleasure or sports will bear a 3% cess.

But electric vehicles including two- and three-wheeled electric motor vehicles will be taxed at a 12% GST rate.

The highest slab of tax under GST, which subsumes various central and state taxes, is capped at 28%. However, the current tax incidence over and above this level is classified as a cess in the new indirect tax regime which will go to the corpus of compensating states for any revenue loss on account of the transition to GST. The government believes putting in place an enabling policy framework that will let industry grow in a viable and sustainable manner is far more important than giving tax breaks or subsidies, which the Modi administration likens to “crutches”. The ministries of power and transport want to promote electric transportation and have set a goal of relying only on electric vehicles for transport by 2030.

“I think it is a well planned move. The government is clearly signalling they want an aggressive electric roll-out rather than any hybrid variant to achieve a complete conversion to electric vehicles by 2030. It is pretty laudable and there is definitely merit in that,” said Vinay Rustagi, managing director of Bridge to India, a consulting firm in India’s clean tech market.

He, however, said he was surprised that the GST Council still decided to levy a 12% rate for electric vehicles.

“For an initial period of 3-4 years, they could have announced a complete waiver on electric vehicles just to give market some consumer experience and consumer base. It would have also been good as India is still trying to build an expertise in the market. But, clearly, they decided to balance tax revenue collection. But it would have been great had they given a short-term relief,” Rustagi added.

Kanika Chawla, a policy specialist working with Delhi-based climate think tank Council on Energy, Environment and Water (CEEW), said it is hard to draw any final conclusion based on GST rates alone and it will only be clear with full budgetary allocations for electric vehicles.

“Electric vehicles have got some marginal preferential treatment over hybrid and petrol cars. There is no complete tax holiday for electric vehicles, creating limited incentives for consumers. It also clears that there is not really a clear economic incentive for consumers to go the hybrid way,” Chawla explained.

She also said it remains to be seen whether any incentives for electric vehicles will be directed to producers to subsidize electric vehicles for consumers or towards those who will be purchasing it.

However, the auto industry association preferred incentives for hybrid vehicles as well.

“Differential GST for electric vehicles will also help electric mobility to gain momentum in India. We would have liked to see a similar differential duty on hybrid vehicles to continue. Government has always encouraged environmentally friendly technologies and with the current focus on reducing emissions of greenhouse gases and reducing carbon footprint, one would have expected the lower taxation to continue on such vehicles in a technology agnostic manner,” said Vinod K. Dasari, president, Society of Indian Automobile Manufacturers (Siam) and managing director of Ashok Leyland Ltd.

Amrit Raj contributed to this story.

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