How growing EV demand would impact govt.’s fuel tax revenue

If electric vehicles start threatening govt.’s fuel tax revenues, it will come up with all kinds of innovative ways to tax EVs and their usage.

BHPian RR96 recently shared this with other enthusiasts.

The development in the EV segment is rapid and electric vehicles would soon lead ICEs to extinction. While it's a good thing for us customers, as it would lead to cheaper, cleaner fuel but I don't know how the government would deal with it in future. Fuel taxes contribute to around 20% of the gross revenue of the country from taxes (Rs. 4 lakh crore from fuel tax) and around 2% of the GDP. When the future shifts to EV, the government would lose its goose which lays the golden egg; the government charges around Rs. 50 as taxes per litre of fuel.

Consider a car having a mileage of 10 km/l. It would contribute to Rs. 5 as taxes per km travelled. At the same time, an EV would only cost a total of Re. 1 for a km from which around 10 paise would go as taxes on electricity (around 10% tax on a unit of electricity). How would the government respond to this in future? Would it be overcharging the customers for electricity? Would like to hear other BHPians' opinion.

Here's what GTO had to say about the matter:

Keep in mind that eventually, public charging facilities will be pricey, the only way to charge EVs for cheap will be at home. If you want to charge it outside (including & especially fast charging), it will be expensive. I won't be surprised if the public charging costs would become about the same as petrol/diesel one day. Look up the USA and you'll already see this happening at some locations.

The government will get its taxes from public charging facilities. Also, at least for the coming 30ish years or so, petrol private vehicles & diesel commercial vehicles are going to have a prominent presence on our roads.

Here's what BHPian Shreyans_Jain had to say about the matter:

This argument is irrelevant and obsolete. It was valid many, many years back when prices at the pump were artificially kept low, and the government had to compensate OMCs for that. Fuel was subsidised, and any reduction in usage meant a lesser loss to be reimbursed.

Nowadays, the government mints money on every liter sold. And it is a pilferage free source of revenue. No leakage, no delay, no added costs. Their revenue from the sale of fuel is much, much more than whatever forex is used to buy/import it.

Rest assured, if and when we reach a point where EVs start threatening revenues from petrol and diesel, the mandarins will come up with all kinds of innovative ways to tax EVs and their usage. Net-net, the babus never lose. And the people are always screwed.

Here's what BHPian speedmiester had to say about the matter:

Wouldn't EVs reduce our oil import bill once they take off in the mass market? The reason for high taxation on oil products is that we are an oil-importing nation. Once EVs become mainstream, this can reduce it to a large extent.

More than increasing electricity tariffs, the benefits offered to EVs in terms of subsidies, lower road taxes will be removed at that stage.

Here's what BHPian Stribog had to say about the matter:

Imagine you had a credit card on which you spend Rs 100 and gain Rs 10 in reward points. Your monthly spend is Rs 10,000 which means a revenue of Rs 1,000.

Now your argument is, Rs 1,000 will stop, but the fact is your spend of Rs 10,000 will ALSO stop in this case. This basically means your net income actually went up by Rs 9,000.

India has a very low PV density of 22 cars / 1,000. Even at the growth rate from 2,000 on which is 9% CAGR, by 2050 we are looking at quadrupling our cars on the road. Without EVs, this will put huge stress on our oil import bill.

Our oil import bill is approx Rs 7.5L crore ($ 100 bn) and is the single largest contributor to forex outflow. To put things into perspective

• Our defense budget is $ 65 Bn
• Our MNREGA budget is $ 10 Bn
• Our entire CAPEX budget is $ 90 Bn

In sum, we can pay off our CAPEX budget + MNREGA and have a little to spare (forex savings) just on the back of our import bill.

Plus our dependencies on external suppliers will go down.

It eases infrastructural logjams in shipping these to the last mile pumps (though this is a fraction of the costs involved).

Let me put it this way, if you had a chance to earn Rs 100 and earn a rebate of Rs 50 for a net earning of Rs 50 or simply earn Rs 100 and not get a rebate, which would you choose?

This is the exact reason why the GoI is pushing slowly right now but aggressively over the coming decade to do a full-scale EV transformation.

Here's what BHPian corvus corax had to say about the matter:

I am going to assume here that once EVs take off, the electricity guys are gonna come to our home, add an additional meter to the EV charger and will charge XX amount per unit. Already at KSEB charging facilities, they are charging 15₹ per unit and, in the near future, even for charging at home we may have to pay that amount or more.

Unless a solar rooftop is installed, of course.

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