India Tax Panel Proposes Heavy Levies on Luxury EVs, Impacting Tesla, BMW and Other Automakers

According to a report by Reuters, an Indian government document shows that an Indian tax panel has proposed a significant increase in excise duty on luxury electric vehicles priced over $46,000. This move could affect the sales of car companies like Tesla, Mercedes-Benz, BMW, and BYD in India.

Image source: Tesla

Indian Prime Minister Narendra Modi is working to reform the country's tax system and encouraging Indian citizens to buy more domestically produced goods. Meanwhile, India’s bilateral relations with the United States have deteriorated due to issues over high tariffs. Previously, the Modi government had proposed a significant reduction in the Goods and Services Tax (GST), a move expected to lower the prices of a wide range of products from shampoo to electronic goods.

This document, which details the recommendations of the Indian tax panel, shows that the panel is responsible for providing tax rate suggestions to the authoritative Indian GST Council. Although the Indian GST Council has supported a broad reduction of tax rates on various goods in line with Modi's reform direction, the tax panel still proposes an increase in taxes on electric vehicles.

The Indian tax panel has recommended raising the GST rate on electric vehicles priced between 2 million and 4 million Indian rupees (approximately $23,000 to $46,000) from the current 5% to 18%. For electric vehicles priced above $46,000, the panel proposes increasing the GST rate to 28%. The document states that these high-priced models mainly target the "upper social strata" and are mostly imported rather than domestically produced.

However, an Indian government source stated that the Modi administration has simultaneously decided to completely eliminate the 28% tax bracket. This leaves the Indian GST Council with two options: either raise the tax rate on high-end electric vehicles to 18% or categorize high-end electric vehicles under the "newly established 40% tax rate category for certain luxury goods."

The GST Council of India, led by the Union Finance Minister Nirmala Sitharaman and comprising representatives from various Indian states, is expected to hold a meeting on September 3-4 to review the aforementioned proposal and has the final decision-making authority. Currently, the council's secretariat has not responded to inquiries from Reuters.

After the above report was released, the Indian Nifty Auto Index turned negative, with a maximum decline of 0.5%; the stock price of Indian domestic automaker Mahindra dropped nearly 3%, and Tata Motors' stock price fell by 1.2%.

Currently, the size of India's electric vehicle market remains relatively small. From April to July this year, electric vehicle sales accounted for only about 5% of total automobile sales in India. However, this segment is experiencing rapid growth: during the same period, electric vehicle sales in India increased by 93% year-on-year, reaching 15,500 units.

The document detailing the recommendations of the tax committee states: "The adoption rate of electric vehicles in the Indian market is continuously increasing. Although the low tax rate of 5% is intended to encourage the public to adopt electric vehicles more quickly, it is equally important for the government to send a signal that higher-priced electric vehicles may be subject to higher tax rates."

The proposal may affect domestic Indian electric vehicle manufacturers such as Mahindra and Tata Motors, though these two companies have a limited number of models priced over 2 million Indian Rupees. In contrast, foreign car companies focusing on high-end electric vehicles will face a greater impact. Tesla recently launched its Model Y in India, with a starting price of $65,000. Meanwhile, Mercedes-Benz, BMW, and BYD have also introduced high-end luxury electric vehicles in the Indian market.

In July of this year, in the Indian electric vehicle market, Tata Motors led with a market share of nearly 40%, followed by Mahindra with an 18% market share. BYD had a market share of 3%, while Mercedes-Benz and BMW together held a market share of 2%. Currently, Tesla has started accepting reservations in India but has not yet begun vehicle deliveries.

In recent months, Tesla has opened two stores in India. It is noteworthy that for several years, Tesla CEO Elon Musk had repeatedly criticized the high import duties imposed by India on cars (around 100%). Additionally, GST is a tax levied on top of these duties, which would further increase the cost of Tesla vehicles.