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GST impact: Will Indian government's ambitious push to electric vehicles kill hybrid segment?

Hybrid car is the sole segment of Indian vehicle industry burdened with higher tax rates under GST compared to earlier.

BT Online   New Delhi     Last Updated: July 5, 2017  | 19:30 IST
GST impact: Will Indian government's ambitious push to electric vehicles kill hybrid segment?
Hybrid car prices will go up by Rs 1.5 lakh to Rs 45 lakh under GST.

Goods and Services Tax (GST) has been a thing of joy for automobile sector in India, but not for the entirety of it. While automakers and their customers are celebrating the decline in tax rates of luxury vehicles, the hybrid car segment is sweating bullets from steep rise in the same.

Hybrid cars have been slapped with 43 per cent tax rates under the new regime, where they were taxed below 31 per cent earlier. Reports suggest that, with GST in place, price tags on hybrid cars could go up by Rs 1.5 lakh to RS 45 lakh.

So while carmakers are offering heavy discounts and offer on their luxury line-up, passing on the benefit of lowered tax rates to their customers, hybrid car segment is threatened with decline in the already meagre sales figure.

Costs rise

The few hybrids available in India are posting low sales as it is. Sales figures for Toyota Camry Hybrid, one of the popular offerings in the segment, were supposedly in single digits during April and May, reports show. Honda, another Japanese auto company, sold one or none of its hybrid vehicle, Accord Hybrid, during the same period. Prices of both vehicles went up by RS 8-10 lakh. BMW i8 was hit the worst, registered the highest growth in prices at Rs 45 lakh.

Home-grown auto companies showed similar trends. The hybrid version of Ciaz and Ertiga by Maruti Suzuki increased by Rs 1.5 lakh. Mahindra and Mahindra also marginally increased the prices of its hybrid vehicles.

Carmakers frown

Maruti Chairman RC Bhargava criticised the increase in tax rates for hybrid cars under GST on grounds that it puts them in the same league as SUVs and bigger sedans. For the same price, buyers are likely to choose vehicles which run entirely on petrol and diesel, instead of opting for the greener alternative.

In a country aiming to promote means of transportation which pollutes less, hybrid cars could facilitate transition to electric vehicles, experts believe. Making them costlier will only interfere with the shift in an undesired way.

Industry experts cautioned that this increase in tax rates will make it difficult for them to introduce any four-wheeler, three-wheeler or two-wheeler hybrid vehicles even if the market demands it.

Overtaxing a noble cause, why?

Hybrid cars in India were earlier taxed at 30.3 per cent, with tax benefits extended under the FAME India Scheme rolled out in April 2015 to promote hybrid as well as electric vehicles. This was in line with strategy of Indian government to replace all vehicles powered by fossil fuels with environment-friendly ones till 2030.

Government believes that most of these tax benefits have been hogged by mild hybrids with diesel engines, which come with 'a larger battery' and a 'start-stop switch', read the TOI report. Thus, the hike in tax rates is meant to turn this trend around.

Electric cars, on the other hand, will attract only 12 per cent tax under GST, against 20.5 per cent that was levied on them before.

Hybrid cars are different from electric ones in the fact that they come with a petrol or diesel engine coupled with an electric motor that improves the fuel efficiency of the vehicle. Variants range between full to mild hybrids, and even micro ones, depending on how the battery pack driving the vehicle is charged. Electric cars run solely on an electric motor powered by a battery pack.

Although Union Transport Minister Nitin Gadkari had called for lowering tax rates on hybrid cars under GST, Finance Minister Arun Jaitley had put it down. When it comes to green transportation, government has placed its bets on electric vehicles instead of relying on hybrid ones.

Road ahead

With benefits being meted out to electric cars in place of hybrid cars, government will have to put its back into promoting the former if it wants to achieve its clean transportation goals within the deadline it has set for itself.

The lower tax rates are likely to attract BMW to bring its 3-series electric to India which is to be launched in two months time. Tesla, the present industry benchmark when it comes to electric cars, may also head to India with its cars if conditions favour it.

However, things are not looking up for hybrid cars. It seems the segment will have to bear the brunt of schemes of the Indian government.

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