GST 2.0: Is The Proposed Updated Tax Structure A Big Hit For EV Manufacturers? | Industry

The potential tax restructuring, if approved, would involve scrapping two existing GST slabs.

Electric vehicle (EV) manufacturers may be heading toward rough terrain as India eyes a major revamp of its tax structure. A report from HSBC Investment Research warns that a reduction in Goods and Services Tax (GST) on internal combustion engine (ICE) vehicles could undercut the EV sector’s momentum, stripping away its current price advantage and potentially slowing its growth.

“EV players will face a disadvantage if taxes are reduced on ICE vehicles,” the report added.

The potential tax restructuring, if approved, would involve scrapping two existing GST slabs and modifying rates for both small and large vehicles. This shift could favour traditional petrol and diesel cars, leaving EV players struggling to maintain their foothold.

A Tax Cut That Favours Traditional Engines

According to the report, the government is mulling over three tax restructuring scenarios, each of which could affect the automotive landscape differently. In the first scenario, GST on small cars would drop from 28 per cent to 18 per cent, while larger vehicles would be subject to a new 40 per cent special rate with the removal of cess. Price reductions under this model would amount to about 8 per cent for small cars and 3–5 per cent for larger ones.

Domestic two-wheeler makers stand to gain substantially in this scenario, even though it could cost the government an estimated $4–5 billion in revenue.

Flattened GST: Lower Prices, Higher Impact

The second proposed model suggests a uniform GST cut from 28 per cent to 18 per cent across all vehicle categories, while keeping the cess intact. Though this approach would lead to vehicle price drops of about 6–8 per cent, HSBC warns it could lead to a $5–6 billion hit to government revenue. More critically, it would erode the cost advantage currently held by electric vehicles.

A Radical Overhaul On The Horizon?

The third—and least likely—scenario involves both a flat GST reduction and complete removal of the cess. This would simplify the tax system but could wipe out nearly half of the GST revenue from the auto sector. While this might appeal to consumers and traditional automakers, it presents a considerable threat to EV adoption in India, particularly in the early phases of market transition.

Deputy Chief Minister of Bihar, Samrat Choudhary, confirmed on Thursday that the Group of Ministers (GoM) supports the Centre’s proposal to eliminate the 12 per cent and 28 per cent GST slabs.

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