Import taxes are cut if electric vehicles are locally built
The Indian government is considering the possibility of lowering the import duty on electric vehicles (EVs) from manufacturers such as Tesla, provided that the companies have plans to manufacture locally and source materials locally shortly. Currently, electric car models with a cost above $40,000 are subject to an import duty of 100 percent, making them significantly more expensive in India than in other markets.
The Indian government has been quite clear about its desire to have vehicle manufacturers establish local production facilities, rather than importing and selling their products into India. This initiative is particularly aimed at EV manufacturers as the government aims to accelerate the adoption of zero-emission vehicles in the country. According to a report in the Times of India, the government is considering reducing import taxes for advanced vehicle manufacturers like Tesla, subject to their commitment to local production and sourcing in the future.
If the plans come to fruition, Tesla could benefit greatly. As the world’s top electric vehicle manufacturer, Tesla has been exploring the Indian car market for some time now. However, the high import tax on fully built units that are shipped into India has discouraged the company from entering the market. While CEO Elon Musk has expressed a desire for Tesla to operate in India, he has also expressed concerns about the high import tax.
Car import taxes in India: why so high?
The Indian government is working to promote the use of electric vehicles (EVs) in the country, citing their benefits such as lower emissions and reduced dependence on imported fuel. However, the government is also focused on boosting local manufacturing across various industries, including automotive. Union Minister Nitin Gadkari stated last year that Tesla is welcome to establish manufacturing facilities in India instead of importing vehicles from its Shanghai plant. He explained that producing in China and selling in India was not an ideal proposition.
Local manufacturing has several advantages, such as job creation and contributing to overall economic growth. Therefore, manufacturers are encouraged to produce locally rather than import vehicles due to the high import tax on high-end cars.
How much are vehicles imported overseas?
India imposes a high import tax on cars, with a rate of 100 percent for cars that cost above $40,000 and 70 percent for all other cars. In comparison, the United States only imposes a 2.5 percent import tax, while Australia imposes a 5 percent tax. Canada levies a duty of around 6.1 percent, while in France, it is 10 percent. Although the figures are higher in some countries, they are still less than in India, as Saudi Arabia imposes a 15 percent tax, China a 23 percent tax, and Brazil a 35 percent tax.
EV import taxes in India are lower for who?
If a temporary cut in import taxes is permitted, Tesla could benefit the most, but other luxury automakers such as Audi and BMW may also profit. Currently, both brands have electric vehicles (EVs) in India, but they are imported, and they are essentially a way to participate in an evolving mobility landscape. Mercedes-Benz sells some of its EVs locally in India.
While a lower import tax might be good news for some companies, it could prove to be a setback for others such as Tata Motors and Mahindra. These companies have made significant investments in local manufacturing, and a lower import duty might encourage buyers to opt for imported models from rival brands, leading to a potential loss in sales. Therefore, a lower import duty could be detrimental to the interests of these companies.
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