NEW DELHI:

In a distinct change in policy stance towards vehicle electrification, the government has levied the highest tax rate on hybrid vehicles, at par with more polluting sports utility vehicles, throwing a spanner in the plans of automakers Maruti Suzuki, Hyundai Motor, Tata Motors, Mahindra & Mahindra (M&M) and Honda, Toyota who invested in technology with stricter emission standards and higher fuel efficiency.

Hybrid vehicles will attract total levies of 43 percent under GST (28 percent tax, 15 percent cess), more than smaller petrol and even diesel vehicles which would attract levies in the range of 29-31 percent. In comparison, pure electric vehicles have been bracketed in the 12 percent tax slab under GST.

The decision has come as a surprise to industry veterans and manufacturers investing in hybrid technology to address air quality concerns, even as infrastructure challenges keep electric vehicles from becoming an immediate reality in the country. Maruti Suzuki Chairman R C Bhargava said, "We believe this (increase in levies on hybrid vehicles) is probably inadvertent because the government would not have changed its policy on hybrid vehicles."

Differential GST for electric vehicles will also help electric mobility to gain momentum in India and SIAM would have liked to see a similar differential duty on hybrid vehicles to continue, said Vinod Dasari, President, Society for India Automobile Manufacturers. (SIAM)

"Government has always encouraged environmentally friendly technologies and with the current focus on reducing emissions of greenhouse gases and reducing carbon footprint one would have expected the lower taxation to continue on such vehicles in a technology agnostic manner, Dasari said.

"The inclusion of 10-13 seater vehicles used mainly for public transport in the same tax bracket as luxury cars with a 15 percent Cess is also unexpected and may merit a review", said Dasari.

"GST on electric vehicles and tractors has been kept at the lower rate band of 12 percent. However, the manufacturers of such vehicles would face an inverted duty structure with major inputs liable to GST at either 18 percent or 28 percent. Though refund of excess input GST would be available, there could be significant working capital blockage for such sectors," said Sarika Goel tax partner EY India.

Hybrid vehicles are proposed to be taxed at the highest GST rate bracket of 28 percent plus a cess of 15 percent. This could act as a dampener for OEMs proposing to invest in hybrid technology and adversely impact sale of such vehicles, unless a subsidy is separately given by the government to offset such tax incidence, Goel added. About a dozen hybrid vehicles - from mild hybrid versions of Maruti Suzuki S-Cross, Hyundai Verna, Tata Hexa, Mahindra XUV to pure hybrid alternates of Toyota Corolla, Volkswagen Passat - are planned for launch over the next 3-4 years, industry sources said.

Hybrid vehicles run on a mix of electric power and conventional fuel and emit are less polluting than those powered by petrol and diesel engines. It remains to be seen if these plans are now impacted because of additional levies on this category of vehicles.

"The government is talking about encouraging electric mobility, and hybrid vehicles form a part of that ecosystem. Raising levies on hybrids under GST is a retrograde step," said Shekhar Vishwanathan, vice-chairman, Toyota Kirloskar Motor (TKM). Toyota sells pure hybrid versions of sedans Camry and Prius in the country through its Indian subsidiary TKM. "This is a big missed opportunity for India. Even globally, electric vehicles are not expected to become mainstream by 2030, may be even beyond that. Total electrification may be possible in public transport vehicles but the same cannot hold true in case of personal vehicles. India does not have the infrastructure required for electric vehicles," said V G Ramakrishnan, managing partner at Avanetum Advisors LLP.