Centre Mulls Cutting Import Tax on EVs After Elon Musk's Remark

Centre Mulls Cutting Import Tax on Electric Vehicles

SUMMARY

For imported electric vehicles with a value of less than $40,000 the government is considering to cut the tax rate to 40% from 60% presently.

For electric vehicles more than $40,000, the government is mulling to drop the import duty rate to 60%

The discussion on cutting import duty on electric vehicles was sparked by Tesla CEO Elon Musk’s when he said India’s import duties ‘highest in the world’

Indian government is considering cutting import duties on electric cars to as low as 40%. The new development comes days after Krishan Pal Gurjar, the newly appointed minister of state in the Ministry of Power and Heavy Industries said that no proposal is under consideration to ease Tesla’s or any other foreign manufacturer’s entry into India even for electric vehicles in general.

According to a Reuters report, the government is considering cutting the tax rate to 40% from 60% for imported electric vehicles with a value (CIF) of less than $40,000. For electric vehicles more than $40,000, the government is mulling to drop the import duty rate to 60% from 100%. The government is looking at obtaining certain economic gains such as a boost to the domestic economy by giving relief to electric vehicle automakers. Prime Minister Narendra Modi, finance ministry, commerce ministry along with government think tank Niti Aayog are discussing the proposals and consultation from all stakeholders will be sought.

The discussion on cutting import duty on electric vehicles was sparked by Tesla CEO Elon Musk’s reply on Twitter. An Indian youtuber Madan Gowri had asked Musk to launch Tesla cars in the country. To which Musk replied : “We want to do so, but import duties are the highest in the world by far of any large country! Moreover, clean energy vehicles are treated the same as diesel or petrol, which does not seem entirely consistent with the climate goals of India.” As per report, Tesla had written a letter to Niti Aayog urging it to cut federal taxes on imports of fully assembled electric cars to 40% from the current 100%.

At present India imposes 100% import duty on fully imported cars with cost, insurance and freight (CIF) value of more than $40,000 and 60% on cars where CIF value is lower than $40,000. Tesla which earlier this year announced its entry to India registered itself as Tesla India Motors in Karnataka will have to rethink its pricing for the Indian market. Tesla’s top-selling Model 3 costs $37,990 – $54,990 (INR 28 Lakh to INR 40 Lakh) and is expected to be launched in the Indian market for $95,496 (INR 70 Lakhs). In India the majority of electric cars sold are priced below $20,000.

Following Musk’s comment Hyundai Motor India’s managing director and CEO SS Kim said that a cut in duty rate by the government on imported electric vehicles would help OEMs to create some market demand and reach some scale. Disagreeing with both Kim and Musk, Ola’s Bhavish Aggarwal said that India should build (EVs) indigenously and also attract global OEMs to build in India and not just import.

At present, Bhavish Aggarwal-led Ola electric is geared up to launch its electric scooter on August 15 which will compete against the likes of Ather Energy, TVS, Hero, Revolt, among others. OLA is also setting up what it calls the world’s largest electric manufacturing site on a 500-acre site. The plant will have a capacity of 10 Mn vehicles a year. The company is also said to be working on an electric car. According to a ICRA’s report, EV penetration in India will be driven by electric two-wheelers and three- wheelers. The report suggests two-wheelers to account for 8-10% of the total EV sales whereas over 30% of the three-wheelers will be battery-powered by FY25.