EV industry seeks uniform GST, wider FAME from Budget 2023

The electric vehicle (EV) industry needs reforms in the upcoming Union Budget—ranging from the current taxation laws to the incentives the industry currently has—to build a strong EV ecosystem that could make the EV industry self-sustainable, says industry body, the Society of Manufacturers of Electric Vehicles (SMEV). "We believe that no policy can be cast in stone and must be dynamic to factor in the on-ground conditions during its implementation. With government support, the Indian EV industry can become a global hub," it says in a statement.

One of the ways which could urgently address the roadblocks the industry is facing is levying a uniform GST rate, for both the vehicles and the components that go into its manufacturing. "While 5% GST is levied for the vehicle; for spare parts, there is no clarity and the industry end up paying 28% (except for batteries). The request, therefore, is for levying a uniform 5% GST for all EV spare parts," it says. Similarly, the industry body believes that if the government removes the customs duty on lithium-ion cells—until manufacturing takes off in India—will help reduce the input cost.

Currently, consumers have to pay 18% GST on every transaction that they undertake at an EV Charging Station and every battery swapped at a Battery Swapping Station. While corporate customers can take the input tax credit on the GST paid during this transaction, retail customers do not have such an option and they absorb the tax as a cost. Therefore, the industry exhorts the government to reduce GST on Battery as a Service (BaaS) and Environment as a Service (EaaS) from 18% to 5%. The government should also consider a reduction in GST on swap batteries to lower the cost of EV ownership among fleet operators, last-mile delivery companies, and the last-mile connectivity sector.

The Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME)-II is currently slated to expire on March 31, 2024. However, SMEV thinks otherwise. "We believe FAME's validity needs to be extended since we have yet to meet the penetration the subsidy was supposed to catalyse," it says. The new FAME II scheme should be linked to e-mobility conversion rather than being time-based. "According to market trends, e-mobility, particularly electric two-wheelers, has the potential to continue growing once it reaches 20% of the total two-wheeler market. The subsidy can be tapered thereafter. The FAME II scheme should also have provisions to directly transfer the subsidy to the customers."

The apex industry body also believes that the scope of FAME should be increased to include commercial vehicles on a project-mode basis. "Today, trucks account for over 40% of India's fuel consumption and over 40% of the Greenhouse gas emissions across the road transport sector," it says. The FAME subsidy should also be expanded to electric tractors to help India reduce fuel imports and GHG emissions. "Center should allocate special funds and advise the Agriculture Department, and to allocate exclusive provisions for a subsidy to e-Tractor buyers (for use both on the farm and commercially) in the SMAM guidelines and allocate state-wise yearly targets for electric tractors."

According to SMEV, to accelerate the adoption of e-mobility, there should be a focus on the creation of EV charging and swapping infrastructure. This objective can be achieved through FAME incentives for charging and swapping infrastructure. There should be a FAME II subsidy for extra or float batteries for battery swapping. "At present, the FAME II subsidy is given to vehicle OEMs. However, for float batteries for a battery swapping network, there is no subsidy on the battery. As per the draft EV policy, it is proposed that the FAME II subsidy will be provided to the extra (float) batteries in the network as well," it adds.

SMEV says the Production-Linked Incentives (PLI) scheme should also include startups and MSMEs. "With the PLI Scheme favoring only established big corporates and multinationals, startups and MSMEs tend to lose because they are already struggling for capital," it says. Moreover, the industry body claims that there is no clarity on the proposed Domestic Value Addition (DVA) norms under PLI. "DVA under FAME-II was quite different than whatever we have heard under PLI DVA. Both FAME DVA and PLI DVA must be same in order to avoid confusion, multiplicity, and complexity of implementation." The industry body also says that it should be fully involved in such critical policies.

On the consumer front, SMEV believes that the government should also help reduce the interest rates charged to EV customers. "EV financing is to be included as part of priority sector lending to ensure more pools of capital are unlocked. The government should extend the guarantee being offered by NITI Aayog and the World Bank through SIDBI even for commercial four/six wheelers," it says. The help should go as far as to reduce the interest rate for loans taken by pure EV OEMs for setting up EV manufacturing facilities. For EV penetration, a critical requirement is to enable a wide network of charging infrastructure. Therefore, SMEV believes that the government is required to provide a capex subsidy of 50% for setting up charging infrastructure across the country.

The battery swapping policy, which was committed in last year's budget, is yet to be implemented. NITI Aayog has consulted stakeholders, but SMEV believes that the final policy is essential for accelerating this segment. The government should also make a consortium of four large oil and gas PSUs—IOCL, BPCL, MNGL, and IGL—and create a special corpus to install battery swapping stations at all the gas stations.

SMEV is also of the view that a policy towards lithium-ion battery recycling should be provided. "As we are in the fifth year of operations, we may need these guidelines immediately." Electronic component buying and recycling agencies may be recruited by the government. The tender may be called upon for agency recruitment. For research and development expenses related to battery recycling, a 200% tax rebate, as before, may be considered.

On the research and development front, SMEV says that there is a lack of R&D on battery storage for EVs. "Hence, the government can consider creating grants/incentives to stimulate innovation in this sector." There is also the non-availability of skilled manpower for R&D, production, or repair and the government should allocate incentives for building academic or skill training courses on EVs.

Currently, the CAFE-II norms do not incentivise companies with an entire electric portfolio. According to SMEV, the government should allow "pure EV companies to trade credits acquired through production with ICE OEMs. It will de-incentivise ICE production and offer a level playing field for new-age companies," it says.