The 36th Goods and Services Tax (GST) Council meeting Saturday approved reduction in GST rate for all electric vehicles to 5 per cent from 12 per cent and for chargers or charging stations for electric vehicles to 5 per cent from 18 per cent along with exempting hiring of electric buses (of carrying capacity of more than 12 passengers) by local authorities.
The changes would be effective from August 1. The reduced GST rates for electric vehicles (EVs) are estimated to lead to an annual revenue loss of around Rs 60 crore, officials said.
Opposition-ruled states such as Punjab, West Bengal and Delhi raised concerns against the decision to cut GST rate for electric vehicles in the Council meeting, officials said. While West Bengal is learnt to have questioned the hurried nature of the Council meeting to decide on this single item agenda, Punjab and Delhi flagged the impact of these rate cuts on the revenue position of states.
These states were of the view that states which are already in revenue deficit would find it difficult to cope with the latest round of rate cuts, given that slashing of GST rate for electric vehicles apart from the estimated revenue loss is likely to also result in lower automobile sales from petrol and diesel segments, which in turn, will dent the states’ VAT earnings from the sale of petrol and diesel.
Punjab’s Finance Minister Manpreet Singh Badal said his state being a revenue deficit state is concerned about the impact of the rate cut for electric vehicles on his state’s revenues. Also, the nature of hurried decision of GST Council is questionable given that there was no such urgency to cut rates for EVs when other items such as jams, pickles and bottled water continue to be taxed at a higher rate of 12 per cent. “The rate cut for electric vehicles will result in revenue loss to states and Punjab being a revenue deficit state is concerned. I am not sure the extent to which the automobile industry was engaged with for taking this decision since it will have an impact on the non-EV (petrol and diesel) segment of automobiles. You do not tax similar goods (comparing petrol, diesel automobiles and EVs) in different tax brackets. Even jams, pickles, bottled water are in a higher tax slab of 12 per cent,” Badal told The Indian Express.
Badal said, “There was no concrete reason for a hurried meeting through videoconferencing to decide on electric vehicles when the Council has not discussed more important issues of revenue management, arrears, compensation from the last four months. Every decision is being taken for optics. I am worried how the GST Council agenda is getting decided.”
The council also decided to extend the last date for enrolling under new composition scheme for service provider. “Last date for filing of intimation, in FORM GST CMP-02, for availing the option of payment of tax under notification No. 2/2019-Central Tax (Rate) dated 07.03.2019 (by exclusive supplier of services), to be extended from 31.07.2019 to 30.09.2019,” a statement said.
In the Union Budget for 2019-20, the Centre had announced incentives for EVs: an income tax deduction of Rs 1.5 lakh on interest paid on loans taken to purchase EVs, and customs duty exemptions on imports of specific components. At present, India is only playing catch-up in the global push for EVs. While global sales of passenger EVs crossed 4 million this month, just about 2,000 EVs were sold in India last year.
The Central government has set a target of 30 per cent vehicles becoming EVs by 2030. Industry and tax experts welcomed the incentives for electric vehicles but some also flagged concerns of the impact of tax cut for EVs on other segments of the auto industry. Waman Parkhi, partner, Indirect Tax, KPMG in India said, “The reduction in the GST rates for EVs and its infrastructure are in line with the government’s policy to incentivise EVs. The government aims to have public transport and two wheelers converted to EVs by 2025 in order to achieve its objectives of cleaner and greener India. However, it should be noted that various state governments have given tax incentives over the last few years to automobile and component manufacturers bringing in huge investments in the conventional petrol and diesel run vehicles in India. Whether pushing for speedy EV revolution would adversely impact such investments needs to be studied by the government.”
Rahil Ansari, head, Audi India said, “The lowering of the GST rate on EVs from 12 per cent to 5 per cent is definitely going to give a boost to EVs in India and we are confident that it will motivate customers looking for both entry-level EVs as well as luxury EVs that will enter the market…while these are great steps for the future, short-term measures supporting the overall industry, also the luxury segment, are required by the government. All players are struggling with declining sales which in turn is leading to production cuts and may lead to job losses, too.”