2017-11-01
High GST rate on batteries to hit e-vehicle drive

High tax on batteries used in electric vehicles under the goods and services tax regime may prove a major roadblock to the government’s drive to push e-vehicles, industry insiders say. 

Under the new indirect tax regime, while electric vehicles sold with batteries are charged 12% GST, batteries sold without vehicles are taxed 28%. This makes the battery swapping business model — which is at the heart of the government's plan to promote widespread use of electric vehicles — unviable, industry officials said. 

“This increases operational costs not only for consumers purchasing a second battery for their electric vehicle, but also impacts adversely firms considering getting into battery leasing, battery swapping ventures,” said Sohinder Gill, director (corporate affairs) at Society of Manufacturers of Electric Vehicles (SMEV). 

Higher tax on batteries has also impacted retail sales of electric two-wheelers because dealers generally do not maintain an equal inventory of vehicles and batteries. 

“Keeping a large number of batteries in stock affects the warranty,” said Gill who is also the CEO of Hero Electric. “However, the higher tax has now raised costs and made it more difficult to purchase batteries separately.” 

On an average, a high-speed lithium-ion battery-powered electric two-wheeler with a range of around 80 km is tagged between Rs 80,000-90,000 (inclusive of subsidy). The li-ion battery constitutes as much as 50% of the cost of such a two-wheeler. Post GST, tax payable on purchasing a battery is more than Rs 10,000, increasing the overall operational cost of e-vehicles. SMEV has made representations before the ministry of finance, the GST Council, and Niti Aayog for a re-examination of the tax rate being levied on batteries.

The development comes even as the government had earlier this year shared an ambitious vision of selling only e-vehicles in the country by 2030. 

Ashok Jhunjhunwala, principal advisor to the ministry of power and new and renewable energy — who spearheads the government’s drive towards e-mobility — had in an earlier interaction said that to make electric vehicles viable there is a need to separate the vehicle business from the energy business in an earlier interaction. 

He also held that manufacturers can sell electric two-wheelers, three-wheelers and non-AC buses without batteries to ensure that the capital cost of electric vehicles is similar to those for electric/diesel vehicles. 

Companies in the energy business can purchase batteries in bulk and lease them out to consumers, Jhunjhunwala had said. The batteries can be swapped or charged at established stations. 

Industry insiders battery swapping is a key for the success of e-vehicles in the country. 

“The battery swapping model will not only make electric vehicles affordable, it will also help address concerns related to the life of the battery,” said a senior industry executive who requested not to be identified. “Fast-charging batteries at upwards of 45 degrees centigrade severely affect the life of the batteries. If leased batteries can be swapped, they can be charged normally in a temperature-controlled environment. There would also be no waiting time for users at the station,” the person said. 

Battery swapping model can also help push the use of electric vehicles for mass public transport, industry insiders said. 

Most city buses travel an average of 30 km per trip and do 8-10 trips per day, an executive said. The buses can be powered with li-ion batteries with a range of 50 km, which can then be swapped at trip terminal points. Swapping stations can similarly be put in place for encouraging sale and use of electric autos and electric-rickshaws, the person said. 

Source- The Economic Times