Citing 'disparity', Electric two-wheeler manufacturers call for GST reforms

This is a major concern for the industry, especially for start-ups, as it increases costs and makes it difficult to manage working capital, the industry feels

Electric two-wheeler (E2W) manufacturers are seeking reforms in the goods and services tax (GST) structure as there is a disparity in the GST for two of its categories.

While GST on components is 18-28 per cent, it is 5 per cent for electric vehicles (EVs), and this, according to them, creates an inverted duty structure, blocking up capital for manufacturers. 

It is a major concern for the industry, especially startups, as it increases costs and makes it difficult to manage working capital, feels the industry.

Players emphasised the need for clearer guidelines, streamlined processes, and faster refunds to ensure GST compliance and potentially lower the input tax rate.

This disparity creates an “inverted duty structure,” where tax paid on inputs is higher than the tax collected on sales.

It forces manufacturers to block working capital as they wait for refunds on the excess tax paid on parts. This structure also escalates manufacturing costs for EVs.

Industry players are seeking a reduction in GST rates on key EV parts to bring them in line with the final sales tax on electric vehicles. This move will significantly reduce the financial burden on EV manufacturers, many of which are startups with limited resources.

“A flatter GST structure for original equipment manufacturers (OEMs) — where the tax rate on parts is similar to the rate on finished vehicles — would be a big relief,” said Madhumita Agrawal, founder & chief executive officer (CEO), Oben Electric.

Agrawal added, “While we sell our products at 5 per cent GST, the batteries we purchase are taxed at 18 per cent. This variance poses a challenge for us as an OEM. A flatter GST structure would free up the much-needed working capital. It would allow us to focus on expanding production and bringing down the final cost of EVs for consumers. If given the opportunity to engage with the government, this would be one of our key requests. We see this as a critical and immediate need.”

Speaking on the issue, Prashant Vashisht, chairman and managing director (MD), Sokudo India, said, “One of the main challenges we face in GST compliance is dealing with the high tax bracket of 18-28 per cent on spare parts versus the low 5 per cent tax when selling EVs. This locks up our money and increases the cost of making EVs. To ensure GST compliance, we need clearer guidelines on handling the high input taxes and the low output tax, along with faster processing and refunding of the excess tax paid. This support will help manage costs more effectively and keep the production of EVs financially viable.” 

In addition to a rate revision, EV manufacturers are also calling for streamlined GST compliance procedures.

They claim that they faced delays in terms of receiving refunds and reimbursement claims. Such delays arise due to the lengthy verification and settlement processes.

Hyder Khan, CEO of Godawari Electric, said, “The government can simplify GST compliance by streamlining procedures. It can offer user-friendly online platforms, provide comprehensive guidance, conduct regular outreach and training programmes, and implement transparent policies to ensure a seamless process for taxpayers. Challenges in GST compliance are that only input GST is refundable, not capital goods or service GST, adding to company costs.”

Apart from the GST burden, some EV companies, like Zypp Electric, also highlighted the challenges associated with state-wise GST registration and filing, particularly for companies operating across multiple states.

Akash Gupta, co-founder & CEO, Zypp Electric, said, “The government can simplify GST for new businesses like mine by reducing the number and frequency of tax returns. A centralised system for managing and filing state-wise registrations and returns would be a huge time saver.”