Indian Govt Mulling To Lower GST on Electric Vehicles to 5%

India may cut the goods and services tax (GST) on electric vehicles to 5% from 12% to provide a stimulus to the sector that’s a high priority for the current government.

The GST Council is set to take up the proposal at its June 20 meeting, said a senior government official aware of the development to an English daily. “There is a proposal to cut tax rates on EVs among other issues,” the official said.

Lower duties are expected to encourage global manufacturers to invest in India’s planned shift to electric vehicles in order to try and bring down pollution levels. This comes as Punjab finance minister Manpreet Badal has suggested to the union finance minister and GST Council chairman Nirmala Sitharaman that tax rates for automobiles, textiles, micro, small and medium enterprises (MSMEs) and real estate sectors need to be lowered to address the slowdown.

Tackle Slowdown

The automobile sector has sought urgent measures to boost demand, after recording the steep decline in sales.  Electric vehicle sales reached 7.5 lakh units in Financial Year (FY) 2018-19, as it has registered a growth of record 31.8 percent. Further to this, SMEV’s analysis reveals that post implementation of the FAME II scheme there has been a drastic brought down in the sales of electric vehicles for the month of April of current financial year due to lack of incentives for private EVs.

Which is why electric vehicles policymakers favour incentivising electric vehicles to meet the government’s long-term of having at least 30 percent of vehicles on road as electric by 2030. Additionally, government think-tank NITI Aayog had proposed that only electric vehicles should be sold in India by 2030. In a cabinet note, the think-tank had asked the road transport and highways ministry prepare a framework which will help cut out on the sale of petrol and diesel vehicles.

The roadmap lays down that all two-and three-wheelers should go electric from 2023 and all commercial vehicles from 2026. Experts said tax cuts would encourage manufacturing. “A reduction in the GST rate on EVs would incentivize global players to set up their manufacturing facilities in India and is also in line with the phased manufacturing programme of the government,” said Pratik Jain, national leader, indirect taxes, PwC told media. Under this, customs duties on EVs are proposed to be gradually increased. Earlier this year, customs duty on electric vehicle components which are imported in a knocked-down or semi knocked down state, were reduced to 10%-15%, according to the notification issued by the Central Board of Indirect Taxes and Customs which came into effect from today (January 30, 2019).