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Auto companies have a problem with Modi government's green Niti

The industry body said it would be too premature to penalise manufacturers of conventional vehicles.

, ET Bureau|
Updated: Dec 22, 2018, 08.44 AM IST
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The taxes levied on diesel vehicles are already similar to feebates — incentivising environment-friendly practices and penalising those who don’t adhere to such practices — and are serving the same purpose as proposed, SIAM said in a submission before the government.
NEW DELHI: Automakers have raised objections to the Niti Aayog’s proposal that a cess be levied on fossil fuel-powered automobiles to cross-subsidise electric vehicles, cautioning that it would hurt a manufacturing industry bringing in billions of dollars of investment and creating thousands of jobs.

Central and state taxes on passenger vehicles in India add up to 70%, making this the highest in the world, the Society of Indian Automobile Manufacturers (SIAM) said, urging the government to utilise the extra cess, charge or taxes currently being levied on diesel vehicles to promote environment-friendly options, instead of imposing a new cess.

The industry body recognised the need to incentivise and promote greener technologies, but said it would be too premature at present to further penalise the manufacturers of conventional vehicles.

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Passenger vehicles attract the highest rate of goods and services tax (GST) at 28%. In addition, a cess of 3-22% is levied on diesel vehicles, depending on the size and engine capacity. Automakers have also been told to deposit 1% of the ex-showroom price of diesel vehicles as environment charge with the Central Pollution Control Board in the National Capital Region.

Besides, the road tax on diesel vehicles is higher than the petrol-powered ones — in Delhi, for instance, it is 25% higher.

Need a Holistic Approach: Bhargava
The taxes levied on diesel vehicles are already similar to feebates — incentivising environment-friendly practices and penalising those who don’t adhere to such practices — and are serving the same purpose as proposed, SIAM said in a submission before the government. “Therefore, the industry feels that as long as the overall taxation on vehicles is so high and graded, there is no justification or rationale for imposing any additional taxes in the form of feebates. Any additional taxes will hurt the auto industry by making the existing technologies more expensive.” ET has seen a copy of the submission.

SIAM said the industry would like to see that the additional revenue collected by central and state governments in the name of environment protection or pollution was earmarked exclusively and used for providing rebates to new energy vehicles.

“There is already a subsidy (for EVs) inbuilt in the tax rates outlined under GST. Electric vehicles are taxed at 12% compared to 28-50% for fossil fuel vehicles,” Maruti Suzuki chairman RC Bhargava told ET. “Besides, as far as small electric cars are concerned, I don’t think anybody can subsidise to the extent to make them affordable. There has to be technological improvements for that. If the immediate objective is to reduce fuel consumption, oil imports and pollution, one should look at creating infrastructure for CNG vehicles.”

As much as 85-87% of the cars plying on the Indian roads between now and 2030 would be non-electric ones, he said, adding that it was, therefore, important to look at the problem in a holistic manner, and not just by promoting electric mobility. “By then (2030), if you like to reduce oil import and pollution, what are your options? Your options are CNG, hybrid and biofuels. All these three technologies are required,” Bhargava said.

Any additional tax being considered on conventional vehicles should be viewed in the context of the impact it will have on the manufacturing and employment generating capabilities of the automotive sector, he said.

The automobile industry, along with oil marketing companies, is in the process of making investments of Rs 1 lakh crore to upgrade vehicles and fuels to Bharat Stage VI emission standards by April 2020. This is expected to reduce the harmful PM 2.5 emissions from diesel and commercial vehicles by as much as 90% when compared to BS-III standards. Given the nascent ecosystem and negligible penetration of electric mobility in India, any move to penalise vehicles powered by conventional fuels will end up jeopardising the existing industry, SIAM said.

“Feebates may make sense when we have made advancements in setting up the ecosystem, infrastructure and technology and reduced the applied rates of taxation on vehicles to the normal GST levels. Any feebates system before we reach that stage would be putting ‘the cart before the horse’, which can potentially do immense damage to the automotive industry,” it said.

SIAM director-general Vishnu Mathur said: “India is at a very nascent stage in its journey towards adoption and utilisation of electric vehicles. At this juncture, instead of disincentivising existing technology — which is the basic principle of a feebate policy — the focus should be on incentivising and promoting greener technology. A feebate policy is too premature for a market like India.”

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