Revenue secretary: India to charge 5% GST on electric vehicles

Revenue secretary: India to charge 5% GST on electric vehicles

A tax panel in India has proposed a significant increase in consumer levies on high-end electric vehicles (EVs), which could impact sales for automakers like Tesla, BMW, Mercedes-Benz, and BYD. The proposed tax hike comes as the government seeks to promote domestic products amid strained trade relations with the US [1].

The panel, tasked with recommending changes to India's Goods and Services Tax (GST) system, has proposed raising the GST rate on EVs priced between 2 million and 4 million rupees (approximately $23,000 to $46,000) to 18%. For vehicles above this price range, the panel has suggested a 28% tax rate, arguing that these vehicles are primarily imported and cater to the upper segment of society [1].

The current GST rate for all electric cars in India is 5%, and the government is considering a sweeping overhaul of the tax system. The latest proposal aligns with Prime Minister Narendra Modi's directive to reform the tax system and reduce levies on many items, including shampoos and electronics [1].

The GST Council is expected to review the proposal at a meeting scheduled for September 3 to 4. The council, led by the federal finance minister and comprising members from all Indian states, will decide on the fate of the tax hike. The proposal has already sparked market reactions, with the Nifty Auto index dropping by 0.05% and local automakers Mahindra and Tata Motors experiencing falls in their stock prices [1].

The EV market in India, though small, has been growing rapidly. EV sales surged by 93% to 15,500 units in April to July 2023, accounting for 5% of total cars sold during the period. The proposed tax hike could affect domestic EV makers like Mahindra and Tata Motors, although their offerings above the 2-million-rupee range are limited. Foreign EV makers with luxury offerings, such as Tesla, Mercedes-Benz, BMW, and BYD, will likely feel the pinch the hardest [1].

Tesla, which entered the Indian market in July, has received fewer orders than anticipated, with just over 600 orders recorded since its launch. The company plans to deliver 300-500 units from its Shanghai plant in 2025, targeting major cities like Mumbai, Delhi, Pune, and Gurugram [1].

If the GST Council approves the tax hike, it could significantly impact the EV market in India, potentially slowing down the adoption of luxury electric vehicles and favoring domestic manufacturers. The market's reaction to the proposed tax changes will be closely watched by investors and financial professionals.

References:
[1] https://www.cryptopolitan.com/india-mulls-hefty-tax-on-luxury-evs/