India mulls steep GST hike on luxury EVs; Tesla and BMW in the firing line

While shampoos and electronics may soon get cheaper under Modi’s tax overhaul, the GST Council will decide if high-end EVs should be pushed into the 40% luxury goods bracket

New Delhi: An Indian tax panel has proposed steep increases in consumer levies on luxury electric cars priced above $46,000, a government document showed, a move that could impact sales of carmakers such as Tesla, Mercedes-Benz, BMW and BYD.

Prime Minister Narendra Modi is aiming to reform India's tax system and is pushing Indians to use more domestic goods just when relations with the United States have soured due to high tariffs. His government has recommended hefty cuts on goods and services tax (GST) that could make everything from shampoos to electronics cheaper.

The key panel tasked with making rate suggestions to India's powerful GST Council has backed sweeping cuts to many items in line with Modi's overhaul, but it has called for raising taxes on electric cars, the document detailing its recommendations showed.

The tax panel recommended raising the GST rate to 18% from 5% currently for EVs priced between 2 million and 4 million rupees ($23,000-$46,000). It also proposed hiking the tax to 28% for cars priced above $46,000, saying that such vehicles cater to the "upper segment" of society and are largely imported rather than manufactured domestically.

But Modi's government has simultaneously decided to do away with the 28% tax rate altogether, leaving the GST Council with the option to increase the tax on EVs to 18%, or put them in the newly planned 40% category carved out for certain luxury goods, said an Indian government source familiar with the discussions.

India's GST Council - led by the federal finance minister and which has members from all Indian states - is meeting on September 3-4 to review the proposals, and has the ultimate authority on decision-making.

The secretariat of the GST Council did not respond to Reuters queries.

India's EV market is small, making up about 5% of total cars sold in April to July this year. But growth in the segment has been rapid: EV car sales in India rose 93% to 15,500 units during that period.

"The uptake of electric vehicles is increasing and while, the low rate of 5% is to incentivise faster adoption of electric vehicles, it is also important to signal that higher-priced EVs can be taxed at higher rates," said the document, detailing the tax panel's recommendations.

The proposal could affect domestic EV makers such as Mahindra & Mahindra and Tata Motors, though their offerings above the 2 million rupee price range are limited.

Foreign automakers offering high-end EVs stand to be hit harder. Tesla just launched its Model Y in India with a base price of $65,000, while Mercedes-Benz, BMW and BYD also offer top-end luxury electric cars.

In July, Tata Motors led the Indian electric car market with a near 40% market share, while Mahindra has 18%. BYD holds a 3% market share, while Mercedes and BMW together account for 2%. Tesla is taking bookings but yet to start deliveries.

Tesla has opened two showrooms in India in recent months, years after Elon Musk repeatedly criticised high tariffs of roughly 100% on imported cars. The GST tax is applied on top of these tariffs, further increasing costs of Tesla cars.