Govt may consider slashing GST on hybrid vehicles to 25%

Lobbying done by some of the major carmakers in pushing for hybrid vehicles seem to be bearing fruit, as the government is considering bringing down the GST rate to 25% on strong hybrid cars, though its other variants would continue to be taxed higher.

In comparison, the Goods and Services Tax (GST) rate on pure electric cars is charged at 12% while those with conventional internal combustion engines (ICE) are levied between 28-45%. This is seen as a change in its po licy stance after the government last year had put hybrid cars in the highest bracket of 28% , wanting to promote pure electric vehicles (EVs) in the country. Analysts claim that the present high taxation has been a major hindrance in the development and sales of hybrid cars, and claim any reduction will help in the segment's growth with India moving towards cleaner mode of transport. "Now the government has come to understanding that the motive of cleaner vehicles should be technology agnostic. So things are slowly moving towards that" said a senior ministry official.

"It is good that hybrid vehicles are given its due consideration. Globally, the path towards greener technology has always passed through hybrid vehicles before coming to pure EVs" added the official.

The development comes months after the department of heavy industries in August had asked the expenditure finance committee (EFC) for a subsidy of Rs 13 crore to promote hybrid cars for potential buyers of 10,000 hybrid cars fitted with lithium-ion batteries of 0.5-2 kilowatt hour (kWh).

The Indian automotive industry has seen several policy flip-flops in recent years as the government keeps changing it, much to the dismay of investors. For example, after all the hoopla created around the EVs over a year, the government earlier this year said it will now look forward to having a 'technology agnostic' green mobility roadmap.

Experts are of the opinion that frequent changes in policies end up sending a wrong signal to investors, who have been demanding consistency in the policies. The government had earlier showed its intention to make EVs mandatory after 2030, only to dilute the plan later. While the declaration seemed ambitious right from the start, it ended up creating confusion among the vehicle manufacturers as they are still in the process of investing in BS-VI emission technology which is set to get mandatory from April 2020.

A global head of a leading motorcycle brand told DNA Money that frequent flip-flops in the policy create chaos in the minds of investors and for vehicle manufacturers, it is very difficult to plan even six months in advance.

The vehicle manufacturing companies, which have already made a significant investment in the EV segment, are now in the process of meeting different government departments to get more clarity on the issue before making any further move. The inconsistency in the policies is not good for the automotive sector which contributes around 7.1% to total GDP of the nation and employs around 32 million people, directly and indirectly, experts added.

According to industry experts, the EV industry is at a nascent stage in India. It is less than 1% of the total vehicle sales but has the potential to grow over 5% in few years. At present, there are more than 4 lakh electric two-wheelers and a few thousand electric cars on Indian roads as the industry volumes have been fluctuating, mostly dependent on the incentives offered by the government. More than 95% EVs on the roads are low-speed electric scooters (less than 25km/hr) that do not require registration and licenses. Almost all electric scooters run on lead batteries to keep the prices low. However, battery failures and low life of batteries have become major limiting factors to boost sales, besides the government subsidies.

Meanwhile, in a recent pre-budget meeting with the heavy industries ministry, vehicle manufacturers have proposed a one-time incentive in the form of rebate in taxes for replacing pre-2000 registered vehicles, industry sources said. Further, the industry also asked the ministry to do away with multiple tax rates for passenger cars (PV) while mooting a special rate for electrification of vehicles.

GIVING WHEELS TO ELECTRIC VEHICLES

• The overall electricity demand from electric vehicles in India is projected to be around 79.9 gigawatt hours(GWh) by 2020 and is expected to reach 69.6 terawatt hours (TWh) by 2030, noted an Assocham-EY joint study
   
• The overall EV demand is expected to help utilities earn an estimated $11 billion (Rs 70,000 crore) in revenue by 2030,” according to the study titled, ‘Electrifying India: building blocks for a sustainable EV ecosystem,’
   
• Siam wants 100% electric for public mobility and 40% electric for personal mobility by 2030 and taking it further for a complete shift to electric vehicle regime by year 2047
   
• A report by Niti Aayog says adoption of electric and shared vehicles could save about $60 billion in diesel and petrol costs while cutting down as much as 1 gigatonne (GT) of carbon emissions for India by 2030