[pqr]

Rs. 54 lakhs government subsidy on Mercedes and Jaguar e-SUV

In October 2020, Mercedes-Benz India has launched EQC, their first all-electric SUV in India, at an ex-showroom price of Rs. 99.3 lakhs. Now it is available at an ex-showroom price of Rs. 1.04 crore, as per their website. Jaguar too launched its all electric crossover I Pace in March 2021, with a starting ex-showroom price of Rs. 1.05 crore for the base S variant and the range topping HSE variant at an ex-showroom price of Rs. 1.12 crore.

Under the current passenger vehicle tax system in India, Mercedes-Benz EQC and Jaguar I Pace get subsidy in form of tax benefit, of at least Rs. 54 lakhs, coming from taxpayer’s pocket.

How? I will go step by step to elucidate the case.

Electric Vehicle (EV) Subsidy

Government subsidy on pure electric vehicles is driven by two primary reasons. EVs have zero tail pipe emission and thus keep immediate surrounding clean of pollutants, and uses electricity as an energy source, thus helping country like India to cut back on imported crude oil supply (largest import item for India).

But battery electric vehicle (BEV) is almost 75% more expensive as compared to petrol powered vehicle right now. The best way to understand is to look at Tata Nexon price, as it is available with three different powertrains.



Without GST incentive, Tata Nexon EV would have an ex-showroom sticker price of Rs. 20.2 lakhs, and not many buyers would be interested then. So, to make EVs more affordable and promote fast adoption, incentive scheme has been put in place to reduce the cost barrier. In case of Tata Nexon, price difference is reduced to 28%, over petrol powered engine, which will eventually get offset in due course of time, owing to the low running cost of BEV.

GST - incentive

From 1st August 2019, GST on the electric vehicle was reduced from 12% to 5%. Whereas GST incidence on regular internal combustion engine (ICE) vehicle or hybrid vehicle, varies from 29% to 50%. In other words, the government has forgone GST to the tune of 24% to 45% on the sale of an electric car in India, in form of incentive.


Source : https://www.siam.in/cpage.aspx?mpgid...8&pgidtrail=85

Road Tax - incentive

Each state in India imposes different road tax on new vehicle sale, which varies from 4% to 20%, based on fuel and price of the vehicle. Several states have either exempted or reduced road tax to make EVs more affordable for end user.


Source : https://www.financialexpress.com/aut...price/2259887/


Now, by adding up all these incentives, the net tax amount forgone by the government on luxury brand BEV, come out to be staggering - Rs. 54 to 58 Lakhs.





Since the government in India has based the incentive system, on a percentage of the vehicle price, without any cap, subsidy outflow is huge. Well, some can still argue that this is having a bigger cause behind it. But question is, how fair is it to subsidize luxury cars, which is a symbol of conspicuous consumption?

To address this issue, other countries have set some criteria, and most important fact, a cap has been placed on subsidy amount.

Example from other countries

China - world’s largest market for EV sales

“China’s subsidies typically apply only to vehicles priced under RMB300,000 ($46,000) with a notable exception granted to vehicles built with battery swapping tech—a process that allows consumers to easily replace the car’s battery once it runs dead or needs an upgrade.”

Source : https://fortune.com/2021/01/05/china...s-sales-tesla/

The subsidy is based on – rated range a vehicle can cover with a fully charged battery and for that too, the maximum incentive value is fixed at 18,000 yuan in 2021.


Source : https://www.metalbulletin.com/Articl...lt-prices.html

USA

The federal grant is restricted to $ 7,500 in form of a tax credit, though different states have their own incentive system. But there are further caveats, based on some logic, as explained by Edmunds.

“The government is phasing out the electric vehicle tax credits as sales increase, on the theory that the high initial cost of adding new technology to a vehicle will come down as economies of scale improve with more sales. That's supposed to eliminate the need for subsidies. The expiration date is separate for each manufacturer and only comes after an automaker sells 200,000 qualified vehicles. Tesla hit the milestone first in July 2018. As a result, there are no federal tax credits for Tesla now. Thus New Tesla owners don’t get any federal incentive. Though different states within USA can offer grants at their level.”

Source : https://www.edmunds.com/fuel-economy...x-credits.html

Tax credit - Tesla USA

Source : https://www.fueleconomy.gov/feg/taxevb.shtml

Tax credit - Mercedes Benz USA

Source : https://www.fueleconomy.gov/feg/taxevb.shtml

Tax credit - Jaguar USA

In fact, Jaguar I-Pace gets incentive of (~₹ 5,48,000) in form of a tax credit.


Source : https://www.fueleconomy.gov/feg/taxevb.shtml

UK

From March 2021, EVs priced above £ 35,000 (~ ₹ 36,26,000) are not even eligible for the government grants.


Source : https://www.gov.uk/government/news/p...ake-the-switch

Summary of federal EV incentive in other countries

The current exchange rate is used, in below table, to assess equivalent Rs. amount, and have better perspective of what incentive is being offered, and car price cap imposed. Though all of them are relatively high income country, and average car retail price is much higher than India, still federal incentive is in range of Rs. 2-5.5 lakhs, and overall car price cap is in range of Rs. 33-36 lakhs.



Government should immediately put a cap on subsidy amount for different category of EV

Just imagine if Tesla, Audi, BMW, Volvo et al, bring in their CBU EV, and start selling more than 1,000 cars a year. This might cause a subsidy drain of over Rs. 500 crores per year!

Just to give perspective, the total budget allocated as a demand incentive under the FAME II scheme for 'e-4 wheelers' is Rs. 525 crores for 3 years. This amount is reserved for vehicles to be used for commercial purpose only, thus ferrying more people throughout the day, rather than just sitting idle, as in the case of most personal cars. Look carefully table below, it has stipulated condition for battery, ex-factory price and incentive cap as well.


FAME II : https://www.fame-india.gov.in/WriteR...tification.pdf

Since mass adoption of EV is a guiding principle, the need of the hour is to put a cap on subsidy limit, similar to what has been done in other countries. Subsidy should be directed to mass market vehicles only. Tata, Mahindra, Maruti, Hyundai-Kia, MG et al, are the ones who have factories in India, to produce EV locally, and of course - new entrants, and usher mass market adoption of vehicles without tail pipe emission.

This will push automakers for localization (to prevent substitution of crude oil import with battery import in India), also, to come up with EVs that are more affordable and thus suitable for mass adoption. Rather than having few niche products, mere for technology demonstration.

Without any cap, GST and road tax concession is working out to be the FAME I scheme. Where Maruti got an undue advantage with its SHVS technology.

https://www.team-bhp.com/forum/india...tech-shvs.html (Maruti gets notice for the second time for 'dubious' hybrid tech (SHVS))

Pointer

In India, almost 96% of cars sold, are under Rs. 20 lakhs ex-showroom price tag, by volume. If purchasing power is confined under Rs. 20 lakhs, then why subsidize luxury cars with taxpayer’s money, which will not help in mass adoption?



It is a clear pointer, setting the cap at Rs. 30 lakhs or lower, will bring the incentivized price down under Rs. 20 lakhs ex-showroom range, and it should come along with a well calibrated system for monitoring and future-adjustment.

Moreover, the government will always have limited resource, so they will certainly face trade-off, either to subsidize few luxury EV or large number of mass market EV. The trade-off decision becomes simple, when one knows, that, the cost of subsidizing one Mercedes-Benz EQC, can easily support incentive of 11 Tata Nexon EV.


Image source : respective website

Subsidy from tax payer’s money should always be meant for bigger cause, and of course – never for conspicuous consumption. A handful of imported EVs is not going to solve the air pollution problem, anyway. CBU EV should not get any subsidy at all, this will push luxury car makers in India, to invest in CKD EV assembly. In fact, CBU EV increases the import bill of the country, thus there is no offset for crude oil import.

Potential electric car buyers seeking performance orientated cars don’t even need subsidy from government.

[Everlearner]

I completely agree with this. EV industry should slowly reach a stage of survival without using tax payers money on incentives. Coming to the topic, a cap is very much needed to ensure few luxury vehicles do not eat up the allocated budget leaving common public who drive mass adoption

[DarthVeda]

Subsidy means the govt pays from its pocket to the end-consumer, it's not the same as not collecting taxes.
Many states are paying subsidy to EV vehicles esp. two-wheeler and four wheelers below certain level. While some states are letting go of "potential" road tax revenue. I don't see a big loss in terms of road tax revenue waiver! trust me, the govt makes up for all these windfalls in other ways.

[Thilak29]

First of all forgoing tax is not the same as subsidy. Non-tangible benefits an eV brings to the environment should not be measured in a tangible unit like currency alone.

I would say, while there should be a cap and graded exemption (higher for entry-level vehicles and lower for higher-end personal vehicles) is the way to go, I believe government should do more for faster EV adoption.

[Turbanator]

Subsidies, Cars and us for a moment I thought have woken up somewhere else or in a different time

As others have pointed, charging lower taxes is not same as subsidy so the thread title and your thoughts needs to be corrected probably.

Why lower rates of Taxes or RTO for a particular category can be debated and perhaps Mods should make changes to thread title to reflect that.

[V.Narayan]

First congratulations on your first post first thread. That's a neat way to start your journey with Team BHP. And it is a very well drafted thread that gives us cause to pause and think. Certainly I had not given this a thought from the angle you present it.

While what several members have stated about the technical difference between a subsidy is correct and a reduction of taxes that is a minor point when compared to the reduction in effective price versus a comparable ICE car. That Merc just got more affordable. :-)

From point of view of practical implementation a reduction of tax is simpler, more practical and less prone to corruption and siphoning than a subsidy. As an OEM or consumer I'd rather go for a drop in tax rates than a subsidy. I base my view on experience in my business life trying to collect, subsidies earned, from the Govt.

[RedTerrano]

Originally Posted by Everlearner

...a cap is very much needed to ensure few luxury vehicles do not eat up the allocated budget leaving common public who drive mass adoption

I fail to understand the logic.
Doesn't this drop in price give everyone a better chance of owning a premium brand?

[Guna]

Originally Posted by RedTerrano

I fail to understand the logic.
Doesn't this drop in price give everyone a better chance of owning a premium brand?

I think the point here is, something like 54 lakh subsidy is better utilized by 10 mass market EVs instead of being consumed by 1 luxury car as the entire point of providing subsidy is to incentivize the mass to adopt the EV.

[reignofchaos]

What Indian govt is giving is not a subsidy. A subsidy is when the govt actually pays you for buying something. This is just a reduced tax rate.

How is this coming from a tax payer's pocket? The buyer of the car is *paying tax* not getting a price reduction.

[carthick1000]

Welcome to Team-BHP!

I think this is a very important topic and very apt one in these times. This shows the nonchalance with which the government proposed tax benefits for EVs. There is not much homework done on how the benefits have to be spread across the automotive market segment both in private and commercial sectors. Instead, this is more or less one size fits all approach for all private car owners, which affects income to the government in a big way.(Well, I for one think that they are not using the taxes in a good way, anyway).

Originally Posted by V.Narayan

And it is a very well drafted thread that gives us cause to pause and think. Certainly I had not given this a thought from the angle you present it.

+1. Me neither.

Originally Posted by V.Narayan

While what several members have stated about the technical difference between a subsidy is correct and a reduction of taxes that is a minor point when compared to the reduction in effective price versus a comparable ICE car. That Merc just got more affordable. :-)

Agree 100% here too. Indeed the technicality of subsidy vs tax reduction (or tax benefit as I would like to call it from a consumer point of view) is a very minor point compared to the actual topic of effective prices (ICE vs EV) as mentioned by Mr.Narayan.

Netherlands is one of the progressive countries to adopt EV specific policies for quite some years now and they turn this tap based on how the EV technologies are evolving and also how people react to it. Though some people here in NL still complain or have a different view towards these benefits, it gives a good impression of a progressive tax structure for EVs. To give an idea of how the various types of subsidies & tax benefits are spread over the private (owners) and business markets (company lease cars is a majority of Dutch car fleet), here is an overview:



- BPM is a CO2 based tax which increases with the amount of CO2 tailpipe emissions.(Unfortunately no OEM or governments are concerned about the well-to-wheel CO2 emissions). eg. a 1.0L VW Golf will have a lower BPM than a 2.0L Golf GTi. An e-Golf would have €0 BPM.

- MRB is the road usage tax which is also based on the weight, CO2 emissions, fuel type etc.

I have explained the taxes a petrol vs diesel vs EV car owner pay during the course of his ownership here (Used Luxury Cars might be cheap to buy, but they are expensive to maintain! Any solutions?)

[v1p3r]

Welcome to TBHP. Glad to have new members posting concrete and thought-provoking discussions.

1. This is not a subsidy - as pointed out by many members. A subsidy is what exists (or used to) for LPG, where consumers buy the commodity or service at below market rate, and someone (the govt/taxpayer) pays the difference. This is a taxation-based incentive.
   .
   
2. Our GST/VAT taxation rate for vehicles is amongst the highest in the world on an absolute basis, and definitely the highest in the world on a PPP basis. This is compounded by our fuel, which is the most expensive PPP in the world. Our roads and infra are pathetic, to boot. In this light, any reduction of vehicle-related taxes, in absolutely any manner whatsoever, is a welcome move and should be greeted with .

[RedTerrano]

Originally Posted by Guna

I think the point here is, something like 54 lakh subsidy is better utilized by 10 mass market EVs instead of being consumed by 1 luxury car as the entire point of providing subsidy is to incentivize the mass to adopt the EV.

The confusion regarding tax payer funded subsidy has already been clarified by several members. It is not a subsidy, but a tax break.

And even if it were a subsidy, I still stand by my point. Let us not forget costlier the car, more the tax paid to the exchequer. I don't think it is fair to exclude certain vehicles just based on their price. That's like telling Shri Ambani not to build Antilla, just because so many live in huts and shanties.

[Everlearner]

Originally Posted by RedTerrano

I fail to understand the logic.
Doesn't this drop in price give everyone a better chance of owning a premium brand?

What I meant is that either subsidy or tax breaks are provided with an end objective. In this case, the decision to provide subsidy or forego potential tax revenue is to drive mass adoption of EVs.

The reason is that as more people adopt the new technology, the economies of scale should kick in and it should reach a self sustaining stage without depending on govt subsidies/tax breaks.

Even though a tax break is technically not a direct expense to govt, it will try to make up the shortfall in other ways and in the end public has to pay for it.
Additionally, these incentives may have a fixed budget( for ex: 10000 cr for FAME 1 etc.,) and once this budget is exhausted, it may not be available anymore.

IMHO, to achieve this objective it is better to incentivize mass products which will help in faster adoption and increase volumes.

Originally Posted by Guna

I think the point here is, something like 54 lakh subsidy is better utilized by 10 mass market EVs instead of being consumed by 1 luxury car as the entire point of providing subsidy is to incentivize the mass to adopt the EV.

Exactly.

Originally Posted by RedTerrano

The confusion regarding tax payer funded subsidy has already been clarified by several members. It is not a subsidy, but a tax break.

And even if it were a subsidy, I still stand by my point. Let us not forget costlier the car, more the tax paid to the exchequer. I don't think it is fair to exclude certain vehicles just based on their price. That's like telling Shri Ambani not to build Antilla, just because so many live in huts and shanties.

I do see your point of view and somewhat agree with it. Yes, a costly car will fetch more tax revenue. But, the impact of incentives on sales numbers will be no where near the impact on mass products.

I'm not saying Ambani should not build Antilia, just that he should not expect an incentive from govt to build it. Rather the same amount should be spent on improving infrastructure for all.

[Maky]

Originally Posted by pqr

Under the current passenger vehicle tax system in India, Mercedes-Benz EQC and Jaguar I Pace get subsidy in form of tax benefit, of at least Rs. 54 lakhs, coming from taxpayer’s pocket.

eh no...
It is not coming from the taxpayers pocket. These EV cars are just not being taxed as much, and rightfully so.

[Guna]

Originally Posted by RedTerrano

. That's like telling Shri Ambani not to build Antilla, just because so many live in huts and shanties.

If the money for Antilla comes from tax payers money (which it is not), yes, he can't I think it is not a correct analogy.