Karnataka's EV tax could derail India's green mobility goals

The Karnataka government's recent decision to levy a 10 per cent tax on electric vehicles (EVs) costing more than Rs 25 lakh has stirred a debate on the future of green mobility in India. This tax, unique in its targeting of electric vehicles, not only marks a shift in the state's policy but also poses a significant threat to the central government’s objective of achieving a 30 per cent EV market share by 2030. This move could significantly impede the progress of EV adoption in the country.

The adoption of new technologies follows a specific pattern, starting with innovators and early adopters, before moving to the early majority, late majority, and finally the laggards. In the context of EVs in India, the market is currently at a nascent stage where innovators and early adopters play a crucial role. These initial groups, characterised by their willingness to embrace new technologies, are critical in driving the wider acceptance and diffusion of EVs across the country.

The additional tax imposed by the Karnataka government threatens to deter these vital early adopters by significantly increasing the initial cost of ownership for electric vehicles. This financial disincentive could slow the momentum of EV adoption.

The move stands in contrast to the centre’s new EV policy which proposes to slash the import duty on EVs to 15 per cent from the earlier 60-100 per cent, provided the manufacturer invests a minimum of Rs 4,150 crore in India in setting up manufacturing units within 3 years.

The additional tax by the state government can be seen as a step backward, undermining efforts to reduce reliance on imported fossil fuels, decrease urban pollution levels, and combat climate change.

Several countries have witnessed significant growth in the EV market, driven by reductions in taxes, subsidies to manufacturers, and various non-monetary incentives. China, for instance, has consistently led the global EV market, contributing over 50 per cent of EV sales annually. The country's New Energy Vehicle (NEV) policy, initiated in 2009, offered extensive support to both EV customers and manufacturers. This support included subsidies, tax reductions, exemptions from registration quotas, incentives for charging infrastructure development, access to special lanes, and priority parking spaces, all aimed at achieving targeted EV adoption goals.

Similarly, the Biden-Harris Administration, in February 2023, reaffirmed its commitment to achieving a zero-emissions transportation sector by 2050. They unveiled a comprehensive plan, allocating $7.5 billion to establish a reliable and convenient EV charging infrastructure. The goal is to set up a national network of 500,000 EV chargers along US highways.

Norway stands out as the world's largest EV market by penetration rate, offering 14 distinct fiscal incentives including complete exemption from registration tax, annual ownership circulation tax, road tolls, public parking fees, value-added tax, and free recharging of EVs at public parking lots.

In this context, the Karnataka government should reconsider its approach to taxation, advocating for support rather than penalisation of EV adoption. Encouraging the uptake of EVs through incentives, infrastructure development, and awareness campaigns is crucial for transitioning from early adopters to the early majority, a necessary step toward achieving widespread EV diffusion.

As discussions around the tax continue, it's clear that the stakes are high. The decision not only impacts Karnataka but sets a precedent that could influence the entire nation's approach to electric mobility. Balancing fiscal needs with environmental and economic goals is no small task, but it is essential for ensuring that India does not fall behind in the global race towards a sustainable future.

(Babu A is a research scholar and Sarkar is a professor, both at a private university in Bengaluru)