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Maharashtra's environment minister Aaditya Uddhav Thackeray Wednesday urged the central government to lower tax rates on imported cars in the budget on Feb. 1, following calls by electric carmakers like Tesla.

Maharashtra is a leading auto manufacturing hub for domestic carmakers like Tata Motors and Mahindra & Mahindra, both of which are investing in manufacturing electric cars locally and have opposed Tesla's pressure to lower taxes.

Thackeray in his letter to Prime Minister Narendra Modi's finance minister, Nirmala Sitharaman, said lowering taxes for a limited period of time would boost India's supply chain ecosystem and manufacturing process for electric vehicles (EVs).

"Pioneering companies like Tesla, Rivian, Audi, BMW among many others must be given a time-bound concessionary customs rate for the import of vehicles," Aaditya Uddhav Thackeray said in the letter, released by him on Twitter.

Thackeray, also recommended in his letter lowering the tax rate for a maximum period of three years or for a defined number of vehicles for any company that wishes to import EVs or auto components to build such cars in India.

Currently, India levies import duties as high as 100% on high-end cars, including EVs, in a bid to protect and promote the local industry. Tesla, which wants to begin selling cars in India, is lobbying to reduce the rate to 40%.

Maharashtra's plea to Modi's government follows a tweet by Tesla CEO Elon Musk last week in which he said the company was "still working through a lot of challenges with the government" ahead of a possible launch in India.

Aaditya Uddhav Thackeray's full letter here

Respected Nirmala Sitharaman ji, 

Through this letter, I want to emphasize that more than 20 per cent of India's greenhouse gas emissions come from the transportation sector. It is also pertinent to observe that in 2017 alone India's death toll linked to air pollution issues was about 23 million people. As a nation, we are also reliant on oil imports. I strongly believe that through consistent & radical reforms in the EV sector, we can address a substantial portion of the said issues our nation currently faces.

As of now, the reforms in the transportation sector at the federal and the state level have set the foundation for India's EV sector with Maharashtra recording a 153% growth in EVs 20-21.

It is in this context and with due reverence, I am writing to you with a set of recommendations that are required to take the EV revolution to the next level in our country;

Priority Sector Lending: 

Cumulative investment in India's electric vehicle (EV) transition could be as large as INR 19.7 lakh crore ($US266 billion) between 2020 and 2030.

Although public and private sector initiatives are accelerating capital deployment to meet this potential, retail lending to support consumers and institutions in financing EVs has been slow to pick up.

Banks and non-banking finance companies (NBFCs) currently hesitate to lend for EVs due to perceived and real asset and business model risks. As a result, if financing is available, EV buyers are unable to obtain interest rates and tenures that are comparable to internal combustion engine vehicles.

EVs in the Reserve Bank of India's priority sector lending (PSL) guidelines can encourage the financial sector to mobilise necessary capital

In addition to enhancing accessibility to jobs and markets, EVs can save gasoline costs for users that can be used towards other avenues such as healthcare, education, food, or housing, Therefore, I sincerely request the Ministry of Finance to potentially pursue the said matter with the RBI to make priority sector lending possible for the EVs.

Liberalized &Time bound Custom Duty Regime: 

At present, India's supply chain ecosystem and manufacturing process for EVs require more International exposure. 

Pioneering companies like Tesla, Rivian, Audi, BMW among many others must be given a time-bound concessionary customs rate for the import of vehicles for retail sale. This will drive the aspiration value in the market, boost investment in our supply chain and encourage the start eco-system to follow the lead of such companies. A similar approach has been taken across emerging markets worldwide.

The concessionary rate could be for a maximum of 3 years or a defined import limit for any company wishing to import vehicles for retail sale or import international standard components for making an EV.

The concessionary rate could also be given in return for a fixed investment guarantee in India's auto supply chain or charging infrastructure which could be to the tune of the customs' revenue the government foregoes relative to the current tax regime. This could be assessed annually.

A mere high import duty only adds to the burden of the customer and does not lay the ground for any industry investment as custom revenues are not directly used for sectoral investments.

It may also be noted that the current tax regime of importing CKDs, CBUs & SKDs for EVs is not well-aligned with the EV ecosystem. The assembling of EVs & ICE engine cars needs to be differentiated given that every EV has a distinct framework. Therefore, a broad-based standardization in this regard in the customs code may not be feasible, given the early stage manufacturing development of EVs

I re-iterate that the Government of Maharashtra through its EV policy will lead the way in mass-scale adoption of EVs through rapid deployment of electric buses in public transport, acquiring only EVs for Government use from this year and extending all the possible support to the industry. We intend to achieve this with a single point objective of India achieving its Net-zero emissions target as announced by the Hon'ble Prime Minister at the COP26 held in Glasgow last year. I urge you to consider the aforesaid and make the necessary interventions. Thanking you.

Yours Sincerely,

(Aaditya Uddhav Thackeray)

To, Nirmala Sitharaman ji Hon'ble Finance Minister, Government of India, North Block, New Delhi 110001.

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