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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A variety of stakeholders must contribute to realising India's EV goal

15 April 2019 Consultancy.in

As a number of different stakeholders work towards meeting India’s Electric Vehicles (EV) goals for the next decade, global professional services firm Deloitte recommends that the development of detailed business models is the best way to generate coherence among all the activities in this regard.

The integration of EVs into the transportation sector has become a priority for a number of countries across the globe. Major economies in Europe including the UK and France have gone as far as to announce that the internal combustion engine will be abolished by 2040, while India’s goals are even more ambitious.

In 2017, the Power Minister of India declared that the Indian government intends to reach zero production of petrol or diesel engines by as early as 2030. The announcement prompted stakeholders in the sector to begin concerted efforts towards achieving this goal, while experts have tried to analyse its feasibility.

Components of EV ecosystem

Shortly after the announcement, global management consultancy McKinsey & Company conducted a comprehensive analysis of the EV sector. As per the firm, the current levels of production and regulatory enablement in the country might carry India to 40% electrification by 2030

The number is staggering, despite being short of the government objectives. According to the firm, the high levels of electrification will be the result of the current targeted government initiatives that are looking to lubricate the integration process, in addition to efforts from the private sector.

Automoblie manufacturers are currently investing in hybrid technology, which is expected to act as a stepping stone to complete electrification. The government, meanwhile, introduced tax concessions on the import of unassembled EVs just earlier this year, which not only boosted the import of parts but also gave impetus to the Make in India campaign.

EV Ecosystem

Big Four accounting and advisory firm Deloitte has now conducted its own assessment of India’s EV scenario. According to the firm, the rapid rate of urbanisation in the country has made the integration of EVs more crucial than ever before, given that the air quality in urban centres is rapidly deteriorating.

Nevertheless, the integration of EVs extends beyond an increase in their production and sales. According to Deloitte, a comprehensive ecosystem must be developed to enable the functioning of EVs in the transportation sector. Such an ecosystem would span the policy, production and consumption domains.

On the demand side, the firm recommends the introduction of incentives – fiscal and otherwise – for the purchase of EVs. On the supply side, the firm recommends incentivising original equipment manufacturers that are emerging in the domestic market, in addition to other boosts for the manufacturing sector.

Interaction among various stakeholders

The third component of this ecosystem is the enablers of the entire EV environment, which includes the charging infrastructure for the vehicles themselves, and the technology for the development of sustainable batteries and other components of the vehicles. The policy framework is another enabling factor.

“The interplay of these stakeholders is essential for streamlining EVs in transport systems and in creating a favorable EV ecosystem,” says the report. “Since every component is likely to have varying degree of stakeholder involvement, integrated efforts become more important for development of sustainable and smart electric mobility solutions. This interplay among stakeholders may be enhanced by government through designing rationalised and sustainable business models to foster the transition to EVs,” it adds.