High VAT slowing electric vehicle sales in India

While states like Delhi, Rajasthan, Uttarakhand and Chhattisgarh do not levy any VAT on electric vehicles, it is the abominably high VAT structure in states like Punjab, UP, Haryana, Goa, and Chandigarh that has caused adverse impact on the EV industry.

Mahindra Verito electricAwaiting announcement of NEMMP 2020 which will add support to the tune of INR 14,000 crores to the hybrid and electric vehicle industry has caused some optimism but astronomical VAT rates imposed in certain states are yet to be corrected as per Central Government announcements.

It is due to no VAT levied in states like Delhi, Rajasthan, Uttarakhand and Chhattisgarh that EV purchase is boosted. There are over 50,000 electric scooters and cars in Delhi due to a 15% incentive for buyers and zero VAT( reimbursed to dealer). States such as Tamil Nadu, Maharashtra, Madhya Pradesh, Karnataka, Kerala, Andhra Pradesh, Gujarat and West Bengal levy upto 5% VAT.

Punjab, Bihar, UP. Haryana, Chandigarh, and Goa warrant abnormally high VAT. In Tamil Nadu, VAT is reduced on Electric Two wheelers but 14.5% is charged on on electric cars.

Under VAT notifications, all environmentally friendly vehicles fall under the zero VAT category but it is despite this fact that some states continue to levy hefty VAT charges, thereby making these environmentally friendly, electric vehicles way beyond the reach of people. This levy scuttles government proposals to add incentive and bring down prices of electric vehicles which may still be in its nascent stage but is seeing considerable promise in India.

Growth of the EV industry is currently at just 1% of total vehicle sales though expectations are rife to see growth of over 5% in the coming few years, though this is not possible without government support. Electric vehicles are automatically priced high when 12.5 – 15% VAT is levied, thereby keeping buyers away. the current electric vehicle market in India is at about 4 lakh electric two wheelers and a few thousand electric cars on Indian roads.