Indias tax panel proposes for a hike on luxury EVs

New Delhi: An Indian tax panel have proposed a huge increase in consumer levies on luxury electric cars that are priced over Rs 38 lakhs, as shown by a government document as reported by Reuters. It is a move that could be impacting sales of brands like Tesla, Mercedes-Benz, BMW and BYD. 

Prime Minister Narendra Modi is aiming to streamline India’s tax system and push the country towards using more domestic goods with high tariffs from the United States, turning the relationship between the two countries to an all-time low. His government has, in fact, recommended huge cuts in goods and services (GST) that could make a lot of commodities much cheaper.

The key panel has been given the task of making rate suggestions to India’s powerful GST Council has backed sweeping cuts to quite a few items in lieu with Modi’s restructuring though it has called for increasing taxes on electric car, as the document detailing the recommendation displayed. 

The tax panel recommended raising the GST rate from five per cent to 18 per cent for EVS that fall between Rs 20 lakh to Rs 40 lakh. It also has proposed increasing the tax 28 per cent for cars that are priced above Rs 38 lakh after noting that these vehicles are luxury items that are serving "upper class” of the society and are often imported and seldom manufactured domestically. 

However, Modi’s government have at the same time also decided to get rid of the 28 per cent tax rate completely, leaving the GST Council with the choice to surge the tax on EVs to 18 per cent or put in the newly planned 40 per cent category made specifically for certain luxury goods, as reported by a source in Indian government to Reuters. 

India’s GST Council, led by the finance minister and which comprises members from all Indian states, is meeting on September 3rd and 4th in order to review proposals, and has the final authority on decision-making. 

The Indian EV market is comparatively small, comprising just five per cent of the total cars sold between April and July this year. However, the EV sector itself has seen a massive growth, rising 93 per cent, with 15,500 units sold during the same period. The document noted the recommendation from the panel saying that the uptake of EVs is increasing, and while the five per cent acts as an incentive for faster adoption of them, it is also important to show that the higher-priced EVs can be taxed at higher rates.

The proposal might also affect the likes of EV makers like Mahindra and Mahindra and Tata Motors, though their cars above the Rs 20 lakh is much limited. Foreign brands that are coming with the high-end EVs are likely to take the major blow with Tesla having just recently launched the Model Y that starts at Rs 59 lakh. Even the likes of BMW, Mercedes-Benz and BYD are top-end luxury electric cars.

In July, Tata Motors led the Indian EV market with a 40 per cent market share, with Mahindra having an 18 per cent share. BYD has three per cent, and Mercedes and BMW together have a two per cent share. Tesla, though, they have recorded bookings, but they haven’t started deliveries, and the orders have been below par.

Tesla currently have two showrooms in India opened recently, after Elon Musk had criticised the high tariffs of around 100 per cent on imported cars. The GST tax is in fact applied above these tariffs making the Tesla price exorbitant.