GST Council Likely To Hike Tax On Used Vehicles To, Including EVs To 18%; What Will Be The Impact?

The GST Council's Fitment Committee has recommended increasing the Goods and Services Tax (GST) rate on old and used electric vehicles (EVs) from the current 12% to 18%. This proposal, if implemented, would bring second-hand EVs under the same tax bracket as larger, conventional vehicles like SUVs.

Current Tax Structure

At present, old and used vehicles are taxed based on the supplier's margin, resulting in relatively low effective taxation. The GST rates vary depending on the vehicle type:

18% for petrol, LPG, or CNG vehicles with an engine capacity of 1200cc or more and a length of 4000mm or more.
18% for diesel vehicles with an engine capacity of 1500cc or more and a length of 4000mm or more.
18% for SUVs with engine capacities exceeding 1500cc.
12% for all other vehicles, including electric vehicles.

While new EVs benefit from a concessional 5% GST rate to encourage their adoption, used EVs fall under the "all other vehicles" category and are currently taxed at 12%. The Fitment Committee's recommendation to increase this rate to 18% would align second-hand EVs with larger vehicles and SUVs, raising their effective cost.

Impact on the Second-Hand EV Market

The proposed tax hike comes at a time when the resale market for EVs is still evolving. Currently, the lower 12% GST rate serves as an incentive for buyers seeking affordable and sustainable mobility solutions in the second-hand market. An increase to 18% could make used EVs less attractive due to higher costs, dampening demand in this segment.

Moreover, operational costs in the used car market are already high, as input parts and services for the repair and maintenance of second-hand vehicles attract an 18% GST. Adding an 18% GST rate on the sale of second-hand EVs would further increase the financial burden on both sellers and buyers. This could lead to a slowdown in the overall market for used EVs, potentially affecting the sector's growth trajectory.

The Fitment Committee's recommendation appears to be an attempt to streamline tax rates across vehicle categories. By bringing used EVs under the same 18% slab as larger petrol, diesel, and CNG vehicles, the committee seeks to create uniformity in taxation. However, industry experts argue that EVs are a sunrise sector requiring continued support to achieve widespread adoption.

Stakeholders in the second-hand vehicle market have expressed apprehension over the proposed hike. The resale market for EVs plays a crucial role in democratizing access to sustainable vehicles, especially for price-sensitive buyers. A higher GST rate could push potential customers toward conventional vehicles or deter them from participating in the second-hand market altogether.