GST: Highest Rate For Hybrids, Electric Vehicles Get Tax Incentive

Hybrid vehicles will be taxed at the highest rate even as the levy on most other automobiles remains unchanged under the Goods and Services Tax regime.

Hybrids have been included in the 28 percent bracket, along with the highest cess of 15 percent. In comparison, tax on electric vehicles has been kept at 12 percent. The GST regime has three tax slabs for passenger vehicles starting at 12 percent, and going up to 28 percent, with three additional cess slabs from 1 percent up to 15 percent.

Hybrid vehicles run on a mix of electric power and conventional fuel, emitting less pollutants compared to those running purely on petrol or diesel. They will be taxed as much as the larger, and more polluting sports utility vehicles, and more than small cars running on petrol, or even diesel.

Incidentally, the government on April 2 withdrew a subsidy meant for mild hybrid vehicles under the FAME India scheme, which was implemented to promote production of hybrid and electric vehicles.

Clarity was needed on the subject before the GST rollout, which has been targeted for July 1, said RC Bhargava, chairman of India’s largest carmaker Maruti Suzuki India Ltd. The carmaker sells the Ciaz mid-sized sedan and Ertiga utility vehicle with a mild hybrid engine in the diesel trims.

Others disagreed with the view, and supported a push for pure electric vehicles rather than encouraging “half-steps” such as hybrids. Abdul Majeed, partner (assurance) at PricewaterhouseCoopers India and an expert voice in the sector, is among those who welcomed the move.

Stanford University recently published a study by economist Tony Seba that forecast that sales of vehicles running on fossil fuels will completely stop by 2030. The Indian government, too, has been more supportive of electric vehicles of late, while seemingly lending a cold shoulder to hybrids.

No Impact Likely On Auto Prices

Including the additional cess to be levied on vehicles, the GST Council seems to have kept tax rates on vehicles similar to the existing tax structure, said industry experts and representatives of automakers.

The tax rate for small cars has been fixed at 28 percent, plus 1 percent additional cess, taking the total to 29 percent. Under the existing tax rate, a central excise of 12.5 percent is levied, and a value added tax (VAT) of 12.5-14.5 percent. Over and above these defined rates, several other small counters such as Octroi, state taxes and infrastructure cess are levied in various states, taking the tax rate close to that under GST.

“The government had informed the industry that the tax levels post GST will be similar to the existing taxes, and that there would be no significant changes,” said Vinod Dasari, president of the Society of Indian Automobile Manufacturers.

Similarly, for SUVs with a length of over 4 metres, an engine capacity of over 1,500 cc, and a ground clearance of over 170mm, the tax rate has been kept at 28 percent, with an additional cess of 15 percent, taking the tally to 43 percent. Under the prevailing regime, central excise of 27 percent is levied on the vehicles, along with VAT of 12.5-14.5 percent, an infrastructure cess of 2.5 percent, and some state levies, taking the figure to 41-45 percent.

“The rates for most categories have been kept the same…there is going to be no change in the prices of those vehicles,” said Bhargava.

Majeed agreed that prices of vehicles were more-or-less not going to be impacted by the rollout of GST.

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