New Delhi [India], August 22 : Electric vehicle (EV) manufacturers may face a competitive setback if the government proceeds with a proposed reduction in Goods and Services Tax (GST) on internal combustion engine (ICE) vehicles, according to a recent report by HSBC Investment Research.
The report highlights that lowering taxes on traditional vehicles could erode the pricing advantage currently enjoyed by EVs, potentially slowing the sector's growth momentum.
"EV players will face a disadvantage if taxes are reduced on ICE vehicles," the report added.
The Government has proposed to scrap two slabs under the GST regime.
Bihar Deputy Chief Minister Samrat Choudhary on Thursday said that the Group of Ministers (GoM) has extended its support to the Centre's proposals to eliminate the 12 per cent and 28 per cent slabs under the Goods and Services Tax (GST) structure.
The report said that while the GST cut may stimulate demand for petrol and diesel vehicles and potentially boost employment, it would also lead to a significant drop in government revenue in the near term.
HSBC outlines three possible scenarios. In the first, GST on small cars could be reduced from 28 per cent to 18 per cent, while larger cars may be moved to a new special rate of 40 per cent with the removal of the cess. This would lead to price cuts of around 8 per cent for small cars and 3-5 per cent for bigger ones.
Two-wheeler manufacturers, especially domestic ones, would also see significant benefits under this scenario, with an estimated revenue loss of USD 4-5 billion for the government.
The second scenario assumes a flat GST cut from 28 per cent to 18 per cent across all vehicle categories, while retaining the cess.
This would reduce vehicle prices by 6-8 per cent and result in a USD 5-6 billion revenue hit.
However, it would also undercut the price advantage of EVs, potentially slowing their adoption in India.
The third and least likely scenario involves both a flat GST reduction and the removal of the cess, which would simplify the tax structure but could cost the government nearly half of its GST revenues from the auto sector.
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