EV INDUSTRY MAY GET A SHOT IN THE ARM WITH LOWER TAXES
MUMBAI: India’s fledgling electric vehicle (EV) industry is likely to receive a shot in the arm with the slashing of corporate tax on new manufacturing companies.
With most makers of electric vehicles and their components planning their investments for India, they would be encouraged to accelerate their plans for local manufacturing with the announcements made by finance minister Nirmala Sitharaman. The steps are expected to propel domestic production, specifically in producing lithium-ion batteries, charging equipment, electrical and electronic parts. Producers of hybrids and even conventional internal combustion vehicles will also benefit.
“With falling rupee, imports have become expensive. Logically, the manufacturing companies will look at increasing localisation of components in India under the newly announced tax regime for new units. This will boost overall manufacturing activities,” said Vinnie Mehta, director general of Automotive Component Manufacturers Association of India (Acma).
The auto industry, along with its vast auto ancillary supply chain, accounts for 49% of India’s manufacturing gross domestic product (GDP).
Sitharaman announced that new manufacturing companies set up on or after October 1 will pay income tax at the rate of 15%.
The benefit will be available to companies which do not avail any other incentive and commence production on or before March 31, 2023.
The effective tax rate for these companies will be 17.01% inclusive of surcharge and cess. Also, such companies will not be required to pay minimum alternate tax.
A rush of new manufacturing companies linked to the EV sector will bolster the Modi administration’s efforts to grow EV sales by making them more affordable and also cut costly crude oil imports as well as high levels of pollution in most major cities.
Earlier, the Union government had allotted ₹10,000 crore to accelerate EV adoption in India under the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles in India, or FAME 2, scheme.
For now, most of the critical electrical and electronic parts for vehicles made in India continue to be imported.
“Maruti Suzuki cars have about 90% localized content, given that some key electronic components are still imported. But we want to make in India. If anybody can make key electronic components in India with quality and reliability, it will help not only your company but the entire Indian automobile industry,” Kenichi Ayukawa, managing director and CEO of Maruti Suzuki India Ltd, said at a gathering of suppliers at Acma’s annual session in New Delhi on September 6.
“This could help attract investment in a few select sunrise industries around lithium-ion batteries, charging equipment and power electronics. There are quite a few global players who are evaluating manufacturing in India and this decision should help in building a stronger business case,” said Rajeev Singh, partner at Deloitte Touche Tohmatsu India Llp.
Ashish Modani, vicepresident of Icra Ltd, said: “Since the electronic content per car is growing every year, new tax concessions may drive localisation in electronic components for automobiles. But certain parts like airbags, sensors, inflators and others may continue to be imported.”