Petrol and diesel cars might get more expensive in the near future, if the finance ministry has its way. According to Mint, the government is considering a proposal to impose a marginally higher tax on conventional cars in an effort to push electric vehicles (EVs).
In a memorandum to the executive finance committee for phase two of the scheme for Faster Adoption and Manufacturing of Electric Vehicles (FAME), the finance ministry reportedly said that the proposal should be considered to avoid the additional financial burden that the government incurs as it incentivises buyers under the Faster Adoption and Manufacturing of Electric Vehicles (FAME) scheme. The ministry added that the move would also act as a catalyst for the promotion of EVs.
To remind you, the government had launched the FAME scheme in 2015, offering incentives on electric and hybrid vehicles of up to Rs 29,000 for bikes and Rs 1.38 lakh for cars. In mid-April, the government had announced extension of phase one of the scheme by six months till September-end, or till its second phase is approved. Phase one was supposed to have ended on March 31, after being extended twice previously.
Then in May, the Heavy Industry Ministry circulated a draft Cabinet note entailing the details of the second phase of the scheme, which according to sources will be restricted to new energy vehicles used for public transport, commercial purposes and high-speed two-wheelers. Significantly, the ministry said that the proposal entailed financial support of Rs 9,381 crore over five years from 2018-19 to 2022-23. This explains the finance ministry proposal to tax conventional vehicles.
The final Cabinet note incorporating the views of related government departments has reportedly already been prepared and is expected to be taken up by the Union Cabinet for approval in the near future, paving the way for the roll out of FAME-II.
Given that the Indian automotive market is very price-sensitive, industry experts say that car sales will be impacted if the proposal is approved – the additional cost will discourage customers from buying traditional fuel-run vehicles.
Avik Chattopadhyay, founder of brand consultancy firm Expereal, told the daily that the move would be “very regressive”, adding that that a separate fund should be allocated for promotion of alternative fuels instead of shifting the burden to the buyers of conventional vehicles.
On the other hand, EV makers will have cause to celebrate. “The government is cash-strapped to offer subsidies. Customers will only get drawn towards EVs when the prices become equal to an ICE (internal combustion engine) vehicle. So, this move makes sense,” said Sohinder Gill, director, corporate affairs, Society of Manufacturers of Electric Vehicles. He added that an increase in taxes to the tune of 100 basis points on traditional vehicles will fetch a huge amount, which can provide subsidy for the first one million EVs.