An Indian tax panel has put forward a proposal for significant increases in consumer taxes on luxury electric vehicles (EVs) with a price tag exceeding $46,000, according to Reuters reports.
This recommendation, if implemented, could affect the sales of international car manufacturers such as Mercedes-Benz, Tesla, BYD, and BMW operating in the Indian market.
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The proposal arrives amidst Indian Prime Minister Narendra Modi’s push to reform the nation’s tax structure and encourage the consumption of domestically produced goods.
This push comes at a time when India’s trade relations with the US have been strained due to high tariffs.
While the government has advocated for substantial reductions in the goods and services tax (GST) across a range of products, potentially lowering costs for consumers, the tax panel has advised an increase in the GST rates for electric cars.
According to a government document outlining the panel’s recommendations, the suggested GST rate for EVs priced between Rs2m and Rs4m ($23,000-$46,000) should rise to 18% from the current 5%.
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By GlobalDataFor those priced over $46,000, the panel has proposed a hike to 28%, citing that such vehicles are predominantly imported and cater to the wealthier segments of society.
However, the Modi administration has plans to eliminate the 28% tax bracket, which could lead the GST Council to either retain the proposed 18% rate or classify luxury EVs under a new 40% tax category designated for certain luxury items.
This information was shared by a government source with knowledge of the ongoing discussions.
The GST Council is set to convene this week to deliberate on these proposals. The Council holds the final authority on tax decisions, and its secretariat did not respond to inquiries from Reuters.
India’s electric vehicle market, though currently small at about 5% of total car sales from April to July this year, has seen a significant growth spurt, with a 93% increase in EV sales to 15,500 units during the same period.
The tax proposal could influence domestic EV manufacturers like Tata Motors and Mahindra, although their range of vehicles above the Rs2m mark is somewhat limited.
Foreign carmakers with higher-end EV offerings are likely to be more severely impacted.
Tesla recently introduced its Model Y in India at a starting price of $65,000, and BMW, BYD, and Mercedes-Benz also have luxury electric cars in the market.
Automakers have been united in their call for maintaining the 5% GST rate to prevent disruption to India’s EV growth and objectives.
Tata Motors emphasised the importance of retaining the current tax rate to sustain the momentum towards clean mobility.
BMW India, which is investing in expanding its EV range in India, warned that a tax increase could hinder the country’s vision for widespread electric adoption and local production.
Mercedes-Benz also expressed concern that a higher tax rate would primarily affect entry-level luxury cars.
According to the publication, Tata Motors currently holds a near 40% share in the Indian electric car market, followed by Mahindra with 18%.
BYD has a 3% share, while Mercedes and BMW together make up 2%. Tesla has started taking bookings but has yet to begin deliveries.
Tesla has opened two showrooms in India, following Elon Musk’s criticisms of the country’s high import tariffs, which can reach approximately 100%. These tariffs are in addition to the GST, further elevating the cost of Tesla vehicles.
Last month, Suzuki Motor announced plans to invest over Rs700bn ($8bn) in its Indian operations over the next five to six years.
