High GST to drive hybrid car sales into slow lane

Levy to go up from 30% to 43%; carmakers rethink plans for these models

Japanese car maker Toyota sold 10 million hybrid vehicles across the world last year, but it might it find difficult to sell a few thousands in India, with a high goods and services tax (GST) on these vehicles.

India, the fifth-largest car market in the world, is going to roll out the new indirect tax regime from July 1. Hybrid cars will attract a GST of 43 per cent (28 per cent tax and 15 per cent cess) — the same as luxury cars. At present, there is a 30 per cent tax on hybrid cars.

“India is a highly price-sensitive market. Our current sales pattern shows a high degree of sensitivity because of differences in state taxes (value-added tax) for advanced technologies such as hybrid. Thus, a sudden increase in price because of the GST would affect the buying pattern. Our hybrid strategy needs to be revisited,” said N Raja, director and senior vice-president (sales and marketing), Toyota. 

The company had introduced the Camry hybrid in 2013 and a new model early this year. It also rolled out the Prius hybrid in February, claiming to reiterate its commitment to hybridisation. Camry prices could go up by Rs 3 lakh to Rs 33 lakh (approximately) from the next month. Toyota’s luxury brand Lexus, which entered India in March with luxury hybrid cars, will also be impacted. Not only Toyota and Hyundai, the high rate might also put a spanner in the plans of other carmarkers, such as domestic market leader Maruti Suzuki. Korean carmaker Hyundai, the second-largest player in the market with a share of 16 per cent, is also worried about the impact of the GST on its sales.

“The rates on hybrid vehicles under the GST will create challenges on volume and viability of a product, and related investments. Hyundai had a structured plan to introduce hybrid in compact cars, sedans and SUVs. The current situation necessitates a re-think on these plans,” said Rakesh Srivastava, director (sales and marketing), Hyundai. 

The company was planning to introduce hybrid technology in vehicles such as the Creta and the Verna. Maruti introduced mild hybrid versions of the Ciaz and the Ertiga in FY16, selling 100,000 units. It is the biggest beneficiary of the government’s Rs 13,000 incentive scheme for buyers of these cars. 

But, the sop was withdrawn in April, as the government decided to exclude mild hybrid cars from the scheme. Buyers of full hybrid vehicles such as the Camry will continue to benefit from the scheme. Maruti Suzuki did not answer queries on how the GST would affect its sales. In its annual report for FY16, it had said, “We were the first ones to launch mild hybrid products with reasonably good volumes. This process of hybridisation will be expanded further in the next few years.”

In April, Maruti’s parent company, Suzuki Motor Corporation, announced an investment plan of Rs 1,200 crore to set up a lithium ion battery manufacturing unit in India, in partnership with Toshiba and Denso. The company could be set up this year and begin manufacturing very soon. The high GST rate could upset this plan as well.

Industry body, the Society of Indian Automobile Manufacturers, had requested the government to bring down the rate on hybrid vehicles from 28 per cent to 18 per cent, and do away with the cess.

A NITI Aayog report last month said electric vehicles, including hybrids, hybrid-electric and plug-in hybrid-electric could play important roles in cleaning the air, reducing congestion, and strengthening the economy. But the GST rates indicate the government’s plan to promoter electric vehicles over hybrid, as it has an ambitious vision to go all-electric by 2030. Electric vehicles will be taxed at 12 per cent; the GST on the smallest petrol car will be 28 per cent.

There is limited clarity on how the government wants to expand the electric mobility in the country. Given the vehicle prices and infrastructure and preparedness of manufacturers, a sizeable shift to electric vehicles looks difficult in next two-three years. 

“We are closely watching this space. There needs to be clarity. We have a strong presence in this space outside India. Globally, this segment is driven by regulations and incentives,” Anurag Mehrotra, MD at Ford India said. 

Some question the decision to leapfrog from Bharat Stage-IV emission norms to BS-VI, and bringing forward the deadline to implement it by three years to April 2020. 

“The government is focusing too much on electric vehicles. But emission from these should not be higher than BS VI-compliant vehicles because of how their batteries are charged,” said Roland Folger, managing director and chief executive officer at Mercedes Benz India.