Aftab Ahmed and Aditi Shah

India Considers Sharp Import Tax Cuts on EVs After Tesla Lobbying: Sources

For EVs valued at more than $40,000, India is looking at cutting the rate to 60% from 100%, two senior government officials told Reuters.

New Delhi: India is considering slashing import duties on electric cars to as low as 40%, two senior government officials told Reuters, days after Tesla Inc’s appeals for a cut polarised the country’s auto industry.

For imported electric vehicles (EVs) with a value of less than $40,000 – including the car’s cost, insurance and freight – the government is discussing slashing the tax rate to 40% from 60% presently, the officials told Reuters.

For EVs valued at more than $40,000, it is looking at cutting the rate to 60% from 100%, they said.

“We haven’t firmed up the reduction in duties yet, but there are discussions that are ongoing,” one of the officials said.

India is the world’s fifth-largest car market with annual sales of about 3 million vehicles but the majority of cars sold are priced below $20,000. EVs make up a fraction of the total and luxury EV sales are negligible, according to industry estimates.

Tesla, in its pitch to the government – first reported by Reuters in July, argued that lowering import duties on EVs to 40% would make them more affordable and boost sales. This triggered a rare public debate among automakers over whether such a move would contradict India‘s push to increase domestic manufacturing.

Even so, the government is in favour of a cut if it can see companies such as Tesla providing some benefit to the domestic economy – manufacture locally, for example, or give a firm timeline on when it would be able to, one of the officials said.

Also read: A Twist in the Tale: Electric Vehicles Will Worsen India’s Pollution Crisis

“Reducing import duties is not a problem as not many EVs are imported in the country. But we need some economic gain out of that. We also have to balance the concerns of the domestic players,” the official said.

Tesla CEO Elon Musk said on Twitter last month that a local factory in India was “quite likely” if the company was successful with vehicle imports but taxes on them are high.

The second official said that since the duty cut is being considered only for EVs and not other categories of imported cars, it should not be a concern for domestic automakers – that mainly manufacture affordable gasoline-powered cars.

India‘s finance and commerce ministries, as well as its federal think tank Niti Aayog, chaired by Prime Minister Narendra Modi, are discussing the proposal and all stakeholders will be consulted, the person added.

Both sources did not want to be identified as the discussions are still private.

India‘s commerce and finance ministries as well as Niti Aayog did not immediately provide comment.

Automakers including Daimler’s Mercedes-Benz and Audi have for years lobbied for lower import duties on luxury cars but faced strong resistance mainly from domestic companies. As a result, India‘s luxury car market has remained small with average sales of around 35,000 vehicles a year.

Tesla’s cars would fall into the high-end EV category, which are mainly imported into India and account for a much smaller percentage of sales. Mercedes, Jaguar Land Rover and Audi sell imported luxury EVs in the country.

This time Tesla’s demands have found support from Mercedes as well as South Korean automaker Hyundai Motor, which has around an 18% share of India‘s car market.

Opposing the proposed cut are Tata Motors, which produces affordable electric cars in the country, and Softbank Group-backed Ola, which is making electric scooters in India.

A third source familiar with the government’s thinking said there was awareness that a brand such as Tesla can make electric cars more penetrable in India, which is lagging other major auto markets in EV sales.

The government is thinking about the best way to approach this and they want to see some benefit even if that only means Tesla pledges to source parts domestically, the person said.

(Reuters)

India Challenges Vodafone Arbitration Ruling In Singapore: Report

New Delhi: India has challenged in Singapore an international arbitration court’s verdict against it over a $2 billion tax claim involving Vodafone Group Plc, a senior government official told Reuters on Thursday on condition of anonymity.

Vodafone, in September, had won the case against India, ending one of the most high-profile disputes in the country that had caused concern among investors over retrospective tax claims on companies.

An international arbitration tribunal in The Hague had ruled that India’s imposition of a tax liability on Vodafone was in a breach of an investment treaty agreement between India and the Netherlands. India had 90 days to appeal the ruling. India’s finance ministry did not immediately reply to an email and message seeking comment on the story.

Also read: Verdict on AGR: How Much do India’s Telecom Industry Have to Cough Up?

India lost another international arbitration case this week, against Cairn Energy, over a tax dispute. It has been ordered to pay the UK-listed company over $1.2 billion in damages and costs.

India is expected to challenge this ruling too given the size of the award, said the senior government official, who did not want to be named as the decision was not public yet.

India has faced a string of arbitrations by investors including Deutsche Telekom, Nissan Motor Co, Vodafone and Cairn Energy over issues ranging from retrospective taxation to payment disputes.

(Reuters)

Automakers Should Reduce Costs, Cut Royalty Payments: FinMin Official

Move comes days after reports said that Toyota would halt expansion in the country due to high taxes.

New Delhi: Automakers should reduce royalty payments to foreign partners to bring down costs instead of seeking tax cuts, a finance ministry official said on Thursday, days after reports that Toyota would halt expansion in the country due to high taxes.

Having suffered a 50% fall in passenger vehicle sales in the five months through August as a result of the coronavirus pandemic, automakers have lobbied the government to lower taxes.

But on Tuesday, Toyota Motor Corp, the world’s biggest carmaker, issued a statement saying it is committed to the Indian market after a senior executive at its local unit said the automaker would not scale up in the country if taxes remain high.

The Japanese automaker issued another statement saying it plans to invest more than $272 million in India over coming years.

Taxes on cars sold in India are as high as 28% and after additional levies can rise to up to 50% for some models.

The Society of Indian Automobile Manufacturers (SIAM) has urged the government to cut the tax on cars, motorbikes and buses to 18% while warning that it would take three to four years for sales to return to their peak levels of 2018.

India’s tax policy on automobiles has been quite consistent for the last three decades in the form of allowing foreign investment and incentivising local manufacturing by providing reasonable protection from imports, said the finance ministry official, who did not want to be named.

Also read: At $200-Billion Market Capitalisation, Here’s How Reliance Industries Stacks up Against Others

Automakers are accustomed to India’s regulatory and taxation environment and have flourished in this regime, the official said, adding that this is evident from “the huge payouts in the form of royalty” made to their parent companies abroad.

Union commerce minister Piyush Goyal told representatives of automakers in the country that they should find ways to reduce royalty payments to foreign parent companies, Reuters reported last month.

Representatives of Maruti Suzuki, the country’s biggest carmaker, and Toyota were among those that met with the minister.

Maruti Suzuki paid Rs 3,820 crore as royalty to its Japanese parent Suzuki Motor in the fiscal year ending March 31, amounting to 5% of its revenue, according to its annual report. While Toyota’s India arm paid $88 million or 3.4% of revenue to its Japanese parent, government data shows.

(Reuters)

Government Asked Banks to Save Jet Airways, Avoid Bankruptcy: Report

While on the surface Jet’s future still hangs in the balance with its main shareholder Etihad at loggerheads over the final terms of any deal, behind-the-scenes support from the government means there is likely to be a bailout.

New Delhi: India’s government has asked state-run banks to rescue privately held JetAirways without pushing it into bankruptcy, as Prime Minister Narendra Modi seeks to avert thousands of job losses weeks before a general election, two people within the administration told Reuters.

The finance ministry has in the past year sought regular updates from the banks, led by State Bank of India (SBI), on Jet‘s financial health, the people said. In recent months, the banks have provided weekly updates about a revival plan and also sought government advice, the people added.

“Top officials at the finance ministry seek regular updates on the issue,” said an official at one of Jet‘s lenders, who did not want to be identified as discussions are private.

Details of the discussion between the finance ministry and bankers on bailing out Jet have not been previously reported.

New Delhi has urged state-run banks to convert debt into equity and take a stake in Jet in a rare move in India to use taxpayer money to save a struggling private-sector company from bankruptcy. The two people plus one more source, however, said this would be “transitory” and lenders could sell the stakes once Jet revives.

The government has also nudged its 49%-owned National Investment and Infrastructure Fund (NIIF) – created to invest in stalled and new infrastructure projects – to buy a stake in Jet, a separate government source said.

Saddled with more than one billion dollars of debt, Jet is struggling to stay aloft. It has delayed payments to banks, suppliers, employees and aircraft lessors – some of which have begun terminating lease deals.

The world’s biggest democracy is gearing up for an election next month and its booming aviation sector, which employs close to a million people, has been one of the job-creation success stories that Modi can point to as he seeks a second term.

It is crucial for India that Jet revives as the fall of its second-largest airline could have “disastrous consequences for the investment climate” in the sector, a top government official told Reuters.

Also read: What Needs to be Done to Keep Jet Airways in the Skies?

The official is concerned that if Jet collapses it could drive up airfare in a fast-growing market, wiping out efforts to bring low-cost air travel to India’s hinterland.

A chaotic end could also make it more difficult for the government to sell a stake in Air India, at least in the short run. Last year, it failed to sell part of its stake in the indebted carrier which currently relies on taxpayer money.

If the government’s plan for Jet succeeds, then state-run banks including SBI and Punjab National Bank (PNB) as well as NIIF would together own at least a third of the airline until they find a new buyer.

Currently, Abu Dhabi’s Etihad Airways is Jet‘s largest shareholder with a 24% stake.

India’s finance ministry, SBI, PNB and Jet Airways did not respond to requests for comment.

Kingfisher’s collapse

Most companies in Jet‘s financial condition would be placed by creditors into India’s new bankruptcy process, two bankers said. However, memories of the chaos sparked by Kingfisher Airlines’ demise in 2012 have prompted the government to seek a more sober road to rescue, they said.

Kingfisher’s bankruptcy caused job losses, lessors lost millions of dollars and banks took massive writedowns.

Putting what is essentially a services provider like Jet through the bankruptcy process would diminish its value because it owns no major assets, unlike a manufacturing company, as most of its planes are leased, said another government official.

If it is pushed into bankruptcy and lessors start pulling even more planes out of service, there would be nothing left for any potential investors, the official said. Already 41 planes have been grounded by lessors in the past three months, leading to flight cancellations.

While on the surface Jet‘s future still hangs in the balance with its main shareholder Etihad at loggerheads over the final terms of any deal, behind-the-scenes support from the government means there is likely to be a bailout.

But there are no easy options, one of the sources said, adding that the lenders do not have the expertise to run an airline so they have to decide what to do once they convert their debt into equity.

New Delhi is also backing a proposal for Jet‘s founder and chairman Naresh Goyal to step down if it means saving the airline, another official said.

“Saving Jet is not equivalent to saving Goyal,” the official said.

Rising airfare

Jet, with its fleet of 119 planes, once controlled a sixth of India’s domestic aviation market. The 25-year-old airline is also one of only two full-service carriers that flies to international destinations. The other is Air India.

The government ideally wants four to six major airlines to ensure fares are competitive and passengers have greater choice, according to the top government source.

India plans to build 100 new airports costing about $60 billion which would need a steady stream of flights to sustain them, and that is possible only if there are enough airlines, a separate official said.

“The investment in these airports will solely depend on operators willing to have regular flights at affordable prices and one operator going bankrupt does not help,” he said.

(Reuters)