Government documents show that the tax panel has proposed a huge increase in GST on luxury electric cars priced above $46000 (about Rs 40 lakh). The GST panel has recommended 18% GST rate on electric cars priced between Rs 20 lakh and Rs 40 lakh and 28% GST rate on cars priced above this. Currently this tax is just five percent.
This proposal can prove to be a big setback for companies like America’s Tesla Inc. to China’s BYD. The group of ministers appointed to the GST Council for the upcoming rationalization has suggested increasing the GST rate. The argument for increasing GST is that such vehicles are for the upper class of society and are imported on a large scale instead of being manufactured locally.
The GST Council headed by Union Finance Minister Nirmala Sitharaman will meet from 3 to 4 September. The meeting will decide on rationalizing indirect taxes on 175 goods and services under the biggest tax reform since 2017.
According to the GST panel, the use of electric vehicles is increasing and the lower rate of 5% is to encourage faster adoption of electronic vehicles but it is also very important to indicate that higher-priced EVs may be taxed at a higher rate.
The proposal may affect Mahindra and Tata Motors as well as Tesla, BYD, Mercedes Benz and BMW, which offer high-end luxury electronic cars.
