Budget 2019: Need wider GST refund structure for EV cos

By Tarun Mehta

The Central government has been consistently supporting and promoting the adoption of electric vehicles and it has had a positive impact on the market. As the industry matures, it will need long term policy support and predictability, which will allow OEMs and ancillary players to make deep investments. We expect the budget this year to focus on 4 areas of concern, that will have an impact across the short to long term growth of the electric vehicle industry in India.

As a manufacturer, we would like the Centre to review the current taxation framework applicable to raw material and the final product. There is an inherent inverted duty structure as the GST input on raw material and other overheads are on average of 18 % wherein the output is pegged at 12%. The proposed reduction of the GST on EVs to 5% will increase this delta. This structure results in significant working capital blockage. Even with the existing GST inverted duty refund framework in place, there is a working capital blockage on the overheads and capital investments. A comprehensive GST refund structure of electric vehicle manufacturers or a reduced GST liability on the raw material should be assessed for seamless cash flows in the long run.

For end consumers, the FAME 2 incentive distribution to individuals is limited to only one vehicle per category but in a country where most households own multiple two-wheelers, this will limit adoption especially if all two-wheelers are to go electric by 2025.

Under the Phased Manufacturing Project, the timeline to source indigenous electric motors has been set as April 2020. This will need to be extended by 6-9 months to account for the validation and certification of the components and the vehicles, Similarly, the timeline to localise lithium-ion cells by April 2021 will not be sufficient for manufacturers to scale to meet demand and should be extended to 2023.

Tarun Mehta is CEO and Co-Founder of Ather Energy.