Friday, March 25, 2011
Law Street - Economic Times (March 2011) - Green cars?
I have been at the receiving end of many emails to switch off power for an hour tomorrow and help save planet Earth -- this one hour of darkness is called Earth Hour. Is one hour really enough?
Aren't long term solutions needed, such as not driving large fuel guzzling cars (even if driving a car is unavoidable), switching off lights/appliances that are not in use, trying to reduce carbon footprint?
Thus, the Finance Bill, 2011, seems have their heart in the right place (if we treat the proposals of the Finance Bill, as a living thing capable of emotions). Yet, perhaps much more is really required to promote hybrid cars in India. Perhaps one needs to take a leaf from the experiences in US, Japan and other countries. Tax sops to the end user of hybrid cars and higher gasoline bills, would act as a catalyst, well perhaps to an extent, for the audience the Government wishes to convert into green car users. For much more, click here for the online edition of The Economic Times. Or scroll below.
Try not to be cynical and do switch off your lights for an hour or more tomorrow. After all, at times symbolism helps spread awareness.
And all the king’s horses…
• Green sops to consumers are the key
• Clarifications on CKD imports is required
• A carrot-stick approach works best
In a quaint conversation between Alice, of the Alice in Wonderland fame and Humpty-Dumpty, the latter keeps reiterating a promise made to him by no other than the King, to put him together again, if he fell off the wall. But, we know the gory end result.
There are many such promises made in the Finance Bill, 2011, which perhaps are made with the right intent, but at this juncture one is skeptical of the results.
For instance, our Finance Minister (FM) in his budget speech has remarked:
“The Indian automobile market is the second fastest growing in the world and has shown nearly 30 per cent growth this year. World over, substantial investments are being made in the field of hybrid and electric mobility. To provide green and clean transportation for the masses, National Mission for Hybrid and Electric Vehicles will be launched in collaboration with all stakeholders.” Alice would probably ask quite a few questions, such as: How? When?
Hybrid and electric mobility requires a lot more to be done in India, rather than just R&D in this sector – such as proper roads, but that is another story. In India, Hybrid or electric cars will have limited usage, by a limited number of people, on some limited routes. Yet, this announcement will perhaps (if one is as optimistic as Humpty Dumpty) be a beginning.
Some countries are not only pumping money into R&D efforts to promote the green auto sector but are providing tax credits to the end user. In the United States, tax credit available to hybrid diesel-electric cars, under the Energy Policy Act, 2005, which ended in December last year. These had granted up to USD 3,400 as a tax credit for the most efficient hybrid cars and USD 4,000 for a compressed natural gas vehicle.
However, there was a catch. This policy called for a phase-out of the tax credit when any specific automaker sold more than 60,000 hybrid or clean-tech vehicles. News reports indicate that certain Toyota and Lexus hybrids became ineligible for tax credits much earlier in September 2007.
Now the focus in the United States is on electric drive vehicles. Indeed federal and state legislations offer many ‘greenies’ to the end user. The tax credit can be as much as USD 7,500 plus a UDS 2,000 credit for charging equipment installation.
In 2009, Japan, in its tax reform bill, waived an automobile weight tax for people buying hybrid cars and electric vehicles. News reports point out that: Normally, people purchasing new cars pay the automobile acquisition tax, which is equivalent to roughly 5% of the car’s price, and three year’s worth of the weight tax. This means a person buying a Yen 2 million car that weighs 1.3 tons has to pay approximately Yen 146,700 in taxes. If the car is a hybrid or an electric vehicle, the taxes will be waived completely. Other types of environmentally friendly cars also receive 50-75% tax reductions depending on their fuel economies and exhaust emissions. In addition, Japan also imposed a higher levy on gasoline. By adopting a carrot and stick approach, many hybrid or electric car models, such as Toyota’s Prius became a runaway success in Japan.
As Zenobia Aunty’s tiny car (not an expensive hybrid, but not a petrol guzzling vehicle either) shudders as it passes a huge pot-hole, she grimaces. But, she is kind enough to let us know that a few concrete announcements have also been made. Full exemption from basic customs duty and a concessional rate of central excise duty has been extended to batteries imported by manufacturers of electrical vehicles. The government has announced excise duty of 10 % on vehicles based on fuel cell technology. Exemptions have also been granted from basic custom duty and special CVD, to critical parts/assemblies needed for hybrid vehicles. The government has also proposed a reduction in excise duty, on kits used for the conversion of fossil fuel vehicles into hybrid vehicles.
Indirect-tax experts point to a slight snag in the above and say certain clarifications are required. In India, car manufacturers tend to import Completely Knocked Down (CKD) kits and carry out assembling in India. As per a recent notification, a CKD unit means a unit having all necessary components, parts or sub assemblies for assembling a complete vehicle but does not include a kit containing a pre-assembled engine, gear box or transmission mechanism; nor one that includes a chassis or a body assembly for a vehicle. The fear is that these kits may continue to be subject to higher basic custom duties, despite the intent to promote import of assemblies needed for hybrid vehicles.
The Mumbai heat, the pollution and the long drive is getting to Zenobia Aunty. So you are sure, she will keep a watch out on how National Mission for Hybrid and Electric Vehicles will pan out.
Source of the photograph
Posted by Lubna at 11:04 PM