Tax cuts on import of un-assembled EVs to boost the Make in India campaign

01 February 2019 Consultancy.in

Consistent with previously declared plans, the Government of India has announced cuts in the import duty on non-assembled electric vehicles. According to a Tax Partner at EY India, the combination of the cuts with increases in taxes on batteries is a way of bolstering the Make in India initiative.

Climate considerations, cost effectiveness and sustainability have made electric vehicles an area of increasing focus in several major economies across the globe. France and Britain are planning to discontinue the internal combustion engine altogether over the next two decades.

India has similar intentions, evident from the comments made by Power Minister Piyush Goyal in 2017, which read, “We are going to introduce electric vehicles in a very big way. We are going to make electric vehicles self-sufficient, like Unnat Jyoti, by Affordable LEDs for All (UJALA). The idea is that by 2030, not a single petrol or diesel car should be sold in the country.”

According to analysis conducted at the time by global management consultancy McKinsey & Company, while India may not be able to achieve such an ambitious target by 2030, it is likely to reach at least 40% electrification over the next decade, which is a significant amount nonetheless.

Tax cuts on import of un-assembled EVs to boost the Make in India campaign

Management consultancy Arthur D Little made predictions of its own last year, predicting that the proper infrastructure and policy framework for electrification is not likely to be in place before 2020, after which a boom is expected in production, taking the level of electrification up to 30% by 2030.

The government has now taken a step towards accelerating this goal, with a major tax cut on the import of deconstructed electric vehicles. Where the customs rate on these vehicles was previously between 15% and 30%, the government has nearly halved these rates to between 10% and 15%.

The striking aspect of the tax cut is that the import of fully assembled vehicles remains costly, primarily due to the opportunity that assembling the vehicles in India provides in terms of jobs and economic growth. Senior Tax Partner at EY Abhishek Jain argues that this is an attempt to bolster the Make in India campaign.

“The discontinuation of concessional customs duty on battery packs for mobile phones and exemption on batteries for electrical vehicles seems to clearly recite the government’s leitmotif of the Make in India initiative. Also, a lower rate of customs duty on goods imported for assembling electric vehicles in India vis-à-vis the conventional vehicles would give a boost to electric vehicle assembly in India,” he said.

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