Explained: Why Tesla’s proposal for tax breaks has not found favour with the govt

The government has turned down a proposal for tax breaks by US-based Tesla Inc. What was the proposal for the import duty cut by Tesla? What has the government said?

Written by Aanchal Magazine , Edited by Explained Desk

New Delhi | Updated: February 8, 2022 10:12 AM IST

4 min read

Tesla had last year written to the ministries seeking a reduction in import duties on fully assembled cars. (AP/File Photo)

The government has turned down a proposal for tax breaks by US-based Tesla Inc., given the lack of a coherent plan by the electric vehicle maker for domestic manufacture of cars. Senior government officials said the view was taken as the car manufacturer is demanding a tax cut only for importing cars into the country with fully assembled units, without any immediate or firm proposal to set up a domestic manufacturing facility in India.

Why has the proposal for import duty cut not been accepted for Tesla by India?

Senior government officials told The Indian Express that the firm in its proposal did not detail any setup for manufacturing the electric vehicles. The government’s primary concern was that the firm is seeking duty cuts and then proposing domestic manufacturing conditional to the sales response in the country. The tax cut demand hence did not find favour as it was also felt that other firms may seek similar concessions.

“Tesla wants customs duty cuts for imports. They are welcome to come and produce. But his argument is first I want to see how many people in India buy my vehicle. For that he needs a lower customs duty…if there’s enough turnover I might come. It’s not a poor man’s car. They are not producing a small EV equivalent for the middle class. They are producing a super class car. Why should we give a Customs exemption? If you can afford it, please pay the duty and take it,” a senior government official told The Indian Express.

What was the proposal for the import duty cut by Tesla? How did state governments respond to it?

Tesla had last year written to the ministries seeking a reduction in import duties on fully assembled cars.

At present, customs duty ranging from 60 to 100 per cent is levied on cars imported as completely built units (CBUs), depending on the engine size and cost, insurance and freight (CIF) value less or above $40,000.

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Last month, following Tesla founder Elon Musk’s tweet that challenges with the Indian government were proving to be a hindrance in the launch of Tesla’s electric cars in India, several state government representatives invited the billionaire to set up shop in their respective territories.

Replying to a Twitter user urging the launch of Tesla vehicles in India, Musk tweeted on January 13: “Still working through a lot of challenges with the government”.

The day after that, Telangana Cabinet minister KT Rama Rao also tweeted: “Hey Elon, I am the Industry & Commerce Minister of Telangana state in India. Will be happy to partner Tesla in working through the challenges to set up shop in India/Telangana. Our state is a champion in sustainability initiatives & a top notch business destination in India”.

Also read | Explained: What is the Hyundai Motor tweet controversy, and how has the company reacted?

Same day, West Bengal’s Minister of State for Minority Affairs & Madrasah Education tweeted: “Drop here, we in West Bengal have best infra & our leader @MamataOfficial has got the vision. Bengal means Business…”

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The next day, Maharashtra’s Cabinet minister Jayant Patil, also quote-tweeting Musk, wrote: “Maharashtra is one of the most progressive states in India. We will provide you all the necessary help from Maharashtra for you to get established in India. We invite you to establish your manufacturing plant in Maharashtra”.

The deluge of states reaching out to Musk ended with Punjab Pradesh Congress Committee and Punjab MLA Navjot Singh Sidhu writing on Twitter: “I invite @elonmusk, Punjab Model will create Ludhiana as hub for Electric Vehicles & Battery industry with time bound single window clearance for investment that brings new technology to Punjab, create green jobs, walking path of environment preservation & sustainable development”.

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Aanchal Magazine

Aanchal Magazine is a Senior Assistant Editor with The Indian Express, serving as a leading voice on the macroeconomy and fiscal policy. With over 13 years of newsroom experience, she is recognized for her ability to decode complex economic data and government policy for a wider audience. Expertise & Focus Areas: Magazine’s reporting is rooted in "fiscal arithmetic" and economic science. Her work provides critical insights into the financial health of the nation, focusing on: Macroeconomic Policy: Detailed tracking of GDP growth, inflation trends, and central bank policy actions. Fiscal Metrics: Analysis of taxation, revenue collection, and government spending. Labour & Society: Reporting on labour trends and the intersection of economic policy with employment. Her expertise lies in interpreting high-frequency economic indicators to explain the broader trajectory of the Indian economy. Personal Interests: Beyond the world of finance and statistics, Aanchal maintains a deep personal interest in the history of her homeland, Kashmir. In her spare time, she reads extensively about the region's culture and traditions and works to map the complex journeys of displacement associated with it. Find all stories by Aanchal Magazine here ... Read More

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