EV firms anxious as Karnataka govt mulls removal of 100% road tax exemption

Karnataka govt may end 100% road tax-exemption

Electric vehicle (EV) firms and prospective buyers in Karnataka are keeping their fingers crossed for the state budget as the transport department has proposed discontinuing the 100 percent road tax exemption.

The possible elimination of the MV tax exemption has raised concerns among EV companies and prospective buyers, as it would lead to higher prices for EVs in the state.

While Karnataka has seen growth in the adoption of EVs in recent years, the increased costs could discourage prospective customers from switching to EVs.

Statistics show that there are around 3 crore registered vehicles in the state, including 2.37 lakh EVs. The number of EVs registered in Karnataka has shown a significant increase, rising from 6,152 in 2019 to 9,716 in 2020, 33,314 in 2021, and 95,934 in 2022. Between January 1, 2023, and July 6, 2023, 77,711 EVs were registered in Karnataka. A majority of EVs in Karnataka are two-wheelers and are registered in Bengaluru.

Motor vehicle tax is one of the primary revenue sources for the government.
Karnataka also imposes the highest road tax on internal combustion engine (ICE) vehicles in the country. For instance, for cars up to Rs 5 lakh, tax rate is 13 percent of the actual price, 14 percent for Rs 5 lakh to Rs 10 lakh, 17 percent for Rs 10 lakh to Rs 20 lakh, and 18 percent for vehicles above Rs 20 lakh. Road tax for two-wheelers is between 10-14 percent of the actual cost.

"We have proposed a 50 percent road tax for EVs, but the state government is yet to take a final decision," said a senior transport department official.

Vivekananda Hallekere, co-founder of Bounce, a manufacturer of electric two-wheelers, said, "It's too early to impose road tax on EVs. Already, the FAME subsidy has been reduced. This will increase the cost of EVs, and the sudden imposition of road tax on EVs will not be good for the industry. Instead, the government can increase in a staggered manner. A sudden price hike on EVs could discourage prospective buyers."

Amit Gupta, co-founder and CEO at Yulu, an electric mobility startup said, "This won't affect Yulu, but it could impact those who are planning to buy EVs. The state government cannot provide long-term tax exemption for EVs, but it should be implemented in phases."

In March 2016, the Karnataka government exempted all EVs from paying road taxes. However, while Karnataka offers road tax exemption with zero registration fees for EV buyers, other states provide financial subsidies to encourage EVs.

In 2017, Karnataka became the first state in the country to introduce an Electric Vehicle and Energy Storage Policy. While the policy was valid for five years, the government is yet to announce a new one.

The transport department is also facing pressure from the Congress-led state government to increase Motor Vehicle tax revenue. The Congress party's election guarantees, ranging from unemployment benefits to free food grains for the poor, played a significant role in its electoral victory in Karnataka, where the party won 135 seats in the 224-member assembly. However, it is estimated that implementing these guarantees would cost Rs 50,000 crore to Rs 60,000 crore per year.