GST Council Set to Discuss Possible Hike in GST on Used EVs

In a move that could impact the electric vehicle (EV) market and small car owners, the GST Council is reportedly set to discuss a potential hike in the Goods and Services Tax (GST) on used electric vehicles (EVs). Alongside this, there are discussions on increasing the GST on small petrol and diesel cars from 12% to 18%, according to recent reports.

The GST Council's 55th meeting, scheduled for December 21, 2024, in Jaisalmer, Rajasthan, could see significant changes in the taxation of both used EVs and traditional petrol-diesel vehicles. The fitment panel, which helps recommend tax rate adjustments, has suggested raising the GST rate on used EVs from 12% to 18%. This move comes at a time when the government is actively considering ways to stimulate the adoption of electric vehicles while rationalizing tax structures across the vehicle sector.

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Current Tax Rates and the Proposed Changes

Currently, new electric vehicles enjoy a relatively low GST rate of 5%, making them attractive to consumers looking to reduce their carbon footprint. However, used EVs are taxed at a higher rate of 12%. This disparity between the taxation of new and used EVs has raised concerns in the industry, especially as the market for second-hand EVs continues to grow. The proposed hike to 18% would align used EVs with the tax rate applied to larger petrol and diesel vehicles.

For comparison, petrol cars with engine capacities exceeding 1,200 cc, diesel cars above 1,500 cc, and SUVs are already taxed at 18%, reflecting the government's stance on taxing larger and more polluting vehicles at a higher rate. If the proposed increase for used EVs is approved, it would represent a significant shift in how these vehicles are taxed, potentially affecting the price point for buyers in the second-hand market.

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Implications for the EV and Automotive Industry

If implemented, the GST increase on used EVs could have a mixed impact on the industry. On one hand, the rise in tax could increase the cost of second-hand EVs, making them less attractive compared to new EVs, which currently benefit from lower GST rates. This could deter potential buyers looking for more affordable electric options. On the other hand, the move might encourage more buyers to opt for new EVs, further boosting the government's push to promote sustainable transportation.

The second-hand EV market, which has been gaining momentum in recent years, may face a slowdown if the tax hike is enforced. Industry experts argue that such a move could undermine efforts to make EVs more accessible to a larger section of the population, especially in a market where affordability remains a key concern.

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GST Council's Broader Taxation Discussions

Apart from the discussions on used EVs, the GST Council is also likely to address other significant tax rate changes. Among these, the Council may approve an increase in the GST for small petrol and diesel cars to 18%, up from the current 12%. This proposal aligns with the broader tax policy aimed at rationalizing GST rates across various vehicle categories, particularly targeting smaller, lower-priced cars.

Furthermore, there are ongoing discussions regarding the taxation of "sin goods" such as aerated beverages, cigarettes, tobacco, and related products. The Group of Ministers (GoM) on GST rate rationalization, led by Bihar’s Deputy Chief Minister Samrat Chaudhary, is reportedly considering raising the tax on these items to 35% from the existing 28%. This move is intended to curb the consumption of harmful products while generating additional revenue for the government.

Tax Tweaks for Apparel and Other Goods

In addition to vehicle-related GST changes, the GoM has proposed a rationalization of tax rates on apparel. According to the recommendations, readymade garments priced up to Rs 1,500 would attract a 5% GST. Those priced between Rs 1,500 and Rs 10,000 would face an 18% GST, while garments costing above Rs 10,000 would be taxed at 28%. These adjustments reflect the GoM’s broader effort to align tax rates across various sectors, impacting a total of 148 items.

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What’s Next?

As the 55th GST Council meeting approaches, all eyes will be on the final decisions that will shape the future of the electric vehicle sector, automotive industry, and beyond. The proposed hikes in GST on used EVs, small cars, and sin goods could have far-reaching effects on consumer behavior, industry growth, and government revenues. With such important decisions on the horizon, stakeholders across various sectors are bracing for what could be a pivotal meeting in India's tax policy evolution.

The discussions are not only a reflection of the government's evolving stance on sustainability and environmental responsibility but also a testament to its efforts to streamline taxation in a rapidly changing economic landscape. As the meeting draws near, the focus will be on how these proposed tax changes will balance environmental goals with economic realities, making it a crucial moment for India’s automotive and consumer goods sectors.

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