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GST Effect: Here Is Why The Government Has Increased Tax Rates For Hybrids Under GST

July 1, 2017 12:27 PM
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India has just witnessed the opening of a new chapter in the economy with a new taxation scheme coming into place. The Goods and Service Tax (GST) system of taxation, an economic reform of sorts, has been rolled out from starting today, 1st July 2017. The new tax rates will do away with Excise duties and VAT and replace it with one single tax slab and an additional cess.

Cars measuring lesser than 4-metres see a decrease in taxation rates between 1.7 percent and 2.5 percent. Cars longer than 4-metres see a decrease in taxation between 8.6 and 12 percent. Electric cars see a decrease of 7.5 percent. So everything looks good for the automotive sector and car buyers right? Wrong!

There is one segment of cars which would be affected pretty badly. That is the Hybrid segment - the only segment which would see a price increase post implementation of GST. Does India not want to shift to greener mobility?

In the American market, buyers of plug-in hybrids benefit from a tax credit ranging between $2,500 and $7,500 depending on the size of the battery in the car, and a few states in the U.S provide additional benefits to electric car owners. In the U.K, the government provides a grant of up to 5,000 GBP on electric cars and plug-in hybrids, alongside other benefits like exemption from congestion charges, etc.

The BMW i8 is the Hybrid which would suffer the most, as the new 43 percent tax rate would see its price increased by nearly Rs 45 lakh. The Volvo XC 90 Hybrid would cost nearly Rs 17 lakh more than it does now. The Honda Accord Hybrid, Toyota Camry Hybrid and Toyota Prius would see an increase of Rs 8-10 lakh. Diesel variants of the Maruti Suzuki Ertiga and Ciaz equipped with SHVS tech will see a price increase of up to Rs 1.5 lakh.

There are very few hybrids on sale in India right now, and all of them already sell in dismal numbers. Honda sold only one unit of the Accord in April and none in May.

Toyota sold only 113 units of the Camry in April and 119 in May, and it is safe to assume that the Hybrid variants of the Camry would have clocked just single digit sales. With the high tax rates being levied on these Hybrids now, sales can only be expected to go down.

If the high GST rates for hybrids leave you confused and wondering why the Indian government is not doing enough to promote green cars, let me remind you of 'FAME'.

The scheme has 4 focus areas, i.e. Technology development, Demand Creation, Pilot Projects and Charging Infrastructure. Phase-I of the scheme was implemented over a period of 2 years starting, 1st April 2015. The scheme was extended in March this year.

So the Indian government too had supported the sale of green cars for a while. But why are they stopping it now?

While most countries slowly climb the ladder of green mobility by promoting hybrids first, then plug-in hybrids, and finally all-electric cars, it seems like the Indian government is thinking futuristically, which is a very good thing indeed.

The GST scheme imposes 7.5 percent lesser taxes on electric cars, making it very clear that the government is promoting electric cars. This move by the government deserves applause, as it takes India to the all-electric car party earlier than expected.

Norway is a country with a population of 5.19 million (51 lakhs), whereas India has a population of 1.3 billion (130 crores). If India wanted to do what Norway did, it would take a pretty long time. Now, we all know that the future of automobiles lies in electric cars, so India would need to make a start if it wanted to get there some day.

The Indian government is going the extra mile to promote electric cars. In 2016, Indian Prime Minister Narendra Modi met Tesla CEO, Elon Musk at the company's Gigafactory and later, Indian Union Transport Minister Nitin Gadkari visited the same facility and met top officials of the company.

Mr. Gadkari even invited Tesla to set up a manufacturing plant in India and showed promise in providing land for the plant near any of the major ports of the country which would help Tesla with exports. He also hinted at the possibility of a Joint venture with an Indian manufacturer.

Tesla officials said it would be considered at the right time in the future and seems like they are indeed taking it seriously. Tesla has been in negotiations with the Indian government to relax import duties on their cars until a Tesla Gigafactory can be built in India.

After the GST percentages came out last month, a few industry experts and analysts spoke up saying that GST was the perfect opportunity to promote electric vehicles. While the government has done that by reducing tax rates, the experts feel that the government should have imposed zero taxes on electric cars until the market has gained significant momentum.

However, it might make more sense for BMW and other manufacturers now, to skip hybrids and bring in pure-electrics, like the BMW 3-series electric which is to be unveiled in September at Frankfurt, and of course the upcoming Tesla Model 3.

This move by the Indian government will surely bring in an influx of electric cars, in the near future. Until then though, it is the Mahindra e2o Plus, e-Verito and e-Supro 3, which would keep the electric car market going in India.


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