Import Tax Cut In Government's New EV Policy, Tesla's India Plans Boosted

The government has cut taxes - as much as 85 per cent - on the import of a certain number of EVs, or electric vehicles, as part of a new scheme to "attract investments by reputed global manufacturers".

The policy - which the government has said is "designed to attract investments in the e-vehicle space by reputed global EV manufacturers" - will potentially boost entry plans of Elon Musk's Tesla, which Bloomberg said in December was close to an agreement to set up a manufacturing plant in Gujarat.

Musk and the Indian government have gone back-and-forth on the subject of tax breaks; the X (formerly Twitter) boss showed an interest in India as early as 2019 but has lamented high import duties that make his cars "unaffordable"; the cheapest Tesla car retails for around Rs 70 lakh each in India.

The government has called on Tesla to avoid selling China-made cars in India and asked him to set up manufacturing plants in the country, from where he can produce for domestic sales and export.

READ | In Blow To Tesla, India Says Not Planning EV Import Tax Cut

The government has, till now, resisted Musk's calls for tax breaks.

But in November last year Bloomberg reported that Delhi was working on a policy lowered EV import duties if manufacturers eventually commit to building them in the country.

READ | Amid Tesla Talks, India Weighs 5-Year Tax Cuts On EV Imports

That policy, announced today, requires EV companies to invest a minimum of Rs 4,150 crore, set up a production facility within three years, and reach 50 per cent DVA, or domestic value addition, within five. This includes 25 per cent localisation by the third year and 50 per cent by the fifth.

Companies that meet these requirements can import a maximum of 8,000 EVs - at an estimated minimum cost of Rs 29 lakh each - annually for five years at 15 per cent import duty. This reduced duty is capped at the investment made by the company or Rs 6,484 crore, whichever is lower.

In addition, this is applicable only to CKD units, the government clarified, referring to completely knockdown unit, or when the automobile arrives in pieces and has to be assembled in India.

At present India levies 70-100 per cent tax on imported cars, depending on its value.

Musk's Tesla won't be the only EV manufacturer looking to benefit from this policy; last month Vietnamese company VinFast made a similar plea, asking for reduced import duties to allow the market to get familiar with the EV category. VinFast and the Tamil Nadu government have agreed to work to eventually investing Rs 16,577 crore, with an estimated Rs 4,144 crore in the first five years.

However, local EV makers Mahindra and Tata are not in favour of these cuts, and have called on the government to promote local manufacturers and "create a stronger (automotive) industry in India".

EVs accounted for just about two percent of India's total car sales last year, but the government has set a target of 30 per cent by 2030, and is working on various measures to attract manufacturers.

With input from agencies

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