India to Tax EV @ 12%

The Indian government recently set up new tax rates for a large number of goods and services to be sold in India. This was under the broader Goods and Services Tax reform (GST) whereby one single standard tax rate will be set for all places in India, subsuming the variety of central and state tax laws. This reform is expected to greatly simplify taxation and logistics leading to a sharp growth in the GDP. However, It does not bear nay benefits for the nascent EV industry. Though the GST rate is only 12% for electric vehicles as compared to 28% for large fossil fuel vehicles, even this 12% is too high. Given the challenges facing the EV industry currently in the form of high costs and lack of a charging infrastructure, consumers do not have much of an incentive to switch from combustion cars to electric cars.

Also, read about India’s Plan for a Radical New Policy To Electrify Its Transport

Most countries such as the USA, Norway and others were given a high amount of tax rebates and incentives which can range from $5000-$10000 besides a variety of other benefits, such as preferred parking and lane access. Not only does India give minute incentives but now is taxing the EVs as well. For the next 4-5 years, till the electric vehicle industry attains scale and is able to reduce costs, it will need handholding and subsidies from the government.

Even the government has a policy of completely electrifying the vehicle fleet in the country by 2030, with a target of 6-7 million vehicles by 2020 itself. However, these targets are only on paper with the government apparently working on incentives to push this futuristic industry whose advent is inevitable. Putting a 12% tax rate instead of a 0% tax rate sends wrong signals to the electric vehicle industry and users. It also goes against the government policy and target of supporting the EV and hybrid vehicle industry. Let’s hope better sense prevails and the government revises the tax on electric vehicles.