The Heavy Industries Ministry has proposed reducing customs duty on parts of electric vehicles which are currently not exempted from import tariff to the Department of Revenue, according to senior officials.
With an aim to boost production of electric vehicles (EVs) in the country, the ministry has also suggested defining semi knocked down and completely knocked down kits used for assembling EVs for streamlining of customs duty.
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At present, key components for EVs, including battery, controller, charger, converter, energy monitor, electric compressor and motor, attract zero customs duty. On the other hand, parts including metals and plastics attract 28 percent basic customs duty.
"We have proposed a definition for completely knocked down (CKDs) and semi knocked down (SKDs) kits for EVs along with a tax structure conducive to increasing their presence on Indian roads. However, we will not touch the parts attracting zero percent duty," a senior government official told PTI.
The tax structure entailing a one-year sunset clause was proposed by the Heavy Industries Ministry to the Finance Ministry in a meeting last week and is likely to be introduced along with the Rs 5,500 crore FAME India scheme entailing subsidies for all categories of electric vehicles, strong hybrid cars and for establishing charging infrastructure.
The policy to boost EV adoption in the country will also entail a long-term road-map and vision to encourage domestic manufacturing of lithium-ion batteries.
"The idea is to encourage big original equipment manufacturers to bring CKD and SKD kits in India so that they can be assembled here and enhance the visibility of EVs. In order that Make in India gets a boost and does not suffer we have suggested sunset clauses," said an official.
The Heavy Industries Ministry had drawn up the blueprint for the second phase of FAME India scheme and received the nod for sanction of Rs 5,500 crore from the expenditure finance committee (EFC) under the Finance Ministry in September.
However, according to sources, the Prime Minister's Office had emphasised incentives for domestic manufacturing of lithium-ion batteries as they are mostly imported from China.
The government presently is not in favour of supporting battery swapping as a means to encourage adoption of electric vehicles owing to fears of dumping of batteries from China and the high cost of establishing battery swapping infrastructure, officials said.
While government think-tank NITI Aayog is coordinating among related ministries for the proposals with regard to FAME-II, the Heavy Industries Ministry will implement the scheme once it is approved by the Union Cabinet.
"Battery swapping policy may lead to dumping of Li-ion batteries from China with no proper mechanism for their disposal. The duty on import of Li-ion battery is only going to increase so we are not going to encourage their imports," said another official.
"Reduction in the SKD and CKD rates for electric vehicles will be a welcome step in the direction of moving towards a cleaner energy option.
"However, we would be favourable towards promotion of local manufacturing of electric vehicles under the Make in India programme as such remedies would augment the adoption of EVs and showcase the government's long-term vision," said N Naga Satyam, Executive Director - Olectra Greentech Limited.
Olectra Greentech manufactures electric buses in India in a strategic tie-up with BYD Auto Industry Co. Ltd, a leading China-based manufacturer of electric vehicles.
The government has already extended the first phase of the Faster Adoption and Manufacturing of Electric (and Strong Hybrid) Vehicles (FAME-India) scheme by two years until March 31 next year.
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