Tesla Receives Support for Import Duty Reduction from India's Maharashtra

von Eva Fox Januar 21, 2022

Tesla Receives Support for Import Duty Reduction from India's Maharashtra

Maharashtra urged India's government to cut tax rates on imported cars on Monday. This appeal is aimed at the electrification of India and support for EV manufacturers such as Tesla, which has appealed to the government of the country with the same issue.

Tesla's entry into the Indian market continues to be delayed, as the government does not want to seek a compromise that satisfies the interests of both. The crux of the problem is that Tesla wants to study the real demand in the local market before building a manufacturing plant there. However, the import duty on cars in India is prohibitively high (reaches 100%), making it difficult to achieve the company's market research goal. The lower duty can only be obtained if the manufacturer establishes an assembly or manufacturing facility in India. However, investing money in building a factory in a market that may not end up showing enough interest in EVs is too risky, so Tesla is trying to find some sort of compromise.

Understanding the situation more deeply, the Minister of Tourism, Environment and Climate Change of Maharashtra, Aaditya Uddhav Thackeray, wrote a letter to the Minister of Finance of India, Nirmala Sitharaman, entitled "Recommendations for financial reforms for facilitating electric vehicle (EV) transition & adoption," in which he described the reasons the country needs to intensify its efforts to adopt EVs.

In his letter, Thackeray stressed that more than 20 percent of India's greenhouse gas emissions come from the transport sector. The death toll in India linked to air pollution problems was about 23 million. Therefore, he calls for consistent and radical reforms in the EV sector.

"I strongly believe that through consistent & radical reforms in the EV sector, we can address a substantial portion of the said issues our nation currently faces."

Thackeray respectfully addressed the recommendations needed to take the electric vehicle revolution to the next level in India:

  • Priority Sector Lending
  • Liberalized &Time bound Custom Duty Regime

Apart from the important Priority Sector Lending, Thackeray pays special attention to the Liberalized & Time bound Custom Duty Regime, which is exactly where Tesla is seeking to reconsider the situation in India.

Liberalized & Time-bound Custom Duty Regime:

  • At present, India’s supply chain ecosystem and manufacturing process for EVs require more International exposure.
  • Pioneering companies like Tesla, Rivian, Audi, and BMW, among many others must be given a time-bound concessionary customs rate for the import of vehicles for retail sale. This will drive the aspiration value in the market, boost investment in the supply chain and encourage the start of the ecosystem to follow the lead of such companies. Similar approach has been taken across emerging markets worldwide.
  • The concessionary rate could be for a maximum of 3 years or a defined import limit for any company wishing to import vehicles for retail sale or import international standard components for making an EV.
  • The concessionary rate could also be given in return for a fixed investment guarantee in India’s auto supply chain or charging infrastructure which could be to the tune of the customs’ revenue the government foregoes relative to the current tax regime. This could be assessed annually.
  • A mere high import duty only adds to the burden of the customer and does not lay the ground for any industry investment as custom revenues are not directly used for sectoral investments.
  • It may also be noted that the current tax regime of importing CKDs, CBUs & SKDs for EVs is not well-aligned with the EV ecosystem. The assembling of EVs & ICE engine cars needs to be differentiated given that every EV has a distinct framework. Therefore, a broad-based standardization in this regard in the customs code may not be feasible, given the early stage manufacturing development of EVs.

© 2022, Eva Fox | Tesmanian. All rights reserved.

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