Karnataka Govt withdraws plan to impose 20% Lifetime Tax on Electric Vehicles

Karnataka Govt withdraws from imposing 20% lifetime tax in EVs costing above 20 Lakhs
Karnataka - withdrawal - impose -Lifetime Tax - Electric Vehicles - TAXSCAN

Karnataka Transport Minister Ramalinga Reddy on Wednesday rolled back a proposal to levy 20 per cent tax on electric vehicles costing above Rs 20 lakh, following a nudge from lawmakers across parties, including the ruling Congress.

Reddy had proposed a 20 per cent lifetime tax on new electric vehicles as part of the Karnataka Motor Vehicles Taxation (Second Amendment) Bill.

The Bill was passed by the Assembly after the minister agreed to drop the 20 per cent tax proposal. The amended version of the Bill proposes 10% tax on electric vehicles.

Under the Bill, Reddy said the government will not levy lifetime tax on yellow-board cars valued at Rs 10 lakh to Rs 15 lakh and good vehicles with a capacity of 1,500-12,000 kg.

The sales of EVs have witnessed a steady increase, with the current number of registered vehicles in the state standing at 2.36 lakh, in July. Karnataka was one of the first states to introduce an EV policy back in 2016, exempting both four-wheeler and two-wheeler EVs from paying road tax as of April 1, 2016, and 2017, respectively.

However, the government considered the elimination of this zero percent road tax exemption and instead proposed a 20 percent road tax. The state’s road transport authority had submitted a proposal to this effect.

Former industries minister R V Deshpande, former deputy chief minister Dr C N Ashwath Narayan and others urged Reddy not to levy 20 per cent tax on electric vehicles as it could discourage vehicle buyers.

Traditional gasoline-Petrol/Diesel-powered vehicles generate negative externalities such as air pollution and greenhouse gas emissions. In this context, taxing gasoline or internal combustion engine vehicles could be seen as a way to internalize these external costs. From this perspective, exempting or providing incentives for electric vehicles aligns with the goal of promoting cleaner and more environmentally friendly transportation.

From a revenue perspective, some economists may question the sustainability of relying on traditional fuel taxes as more vehicles transition to electric power. As EVs become more prevalent, alternative revenue sources may need to be explored to fund infrastructure and public services traditionally funded by fuel taxes.

Economists might support temporary tax incentives for electric vehicles as a way to promote innovation and facilitate the transition to cleaner technologies. However, they may also emphasize the importance of gradually phasing out these incentives once electric vehicles achieve greater market penetration and economies of scale.

However, it is required to consider the distributional impacts of EV incentives, as they might benefit higher-income individuals who can afford electric vehicles. Policymakers may need to address these equity concerns to ensure that the benefits of transitioning to electric vehicles are distributed fairly across society

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