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Old 18th October 2021, 15:04   #1
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Default Effect of Electric Vehicles on the government's revenue? Fuel taxes contribute to 2% of GDP

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

Consider a car having a mileage of 10 km/ltr it would contribute to Rs.5 as taxes per Km travelled, at the same time an EV would be be only costing a total of Rs.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 government respond to this in future, would they be overcharging the customers for electricity. Would like to hear other BHPians' opinion.

P.S. Didn't find a similar topic hence started a thread. Mods please merge to similar topic.

Last edited by Chetan_Rao : 18th October 2021 at 21:32. Reason: As requested.
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Old 18th October 2021, 15:26   #2
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Default re: Effect of Electric Vehicles on the government's revenue? Fuel taxes contribute to 2% of GDP

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Originally Posted by RR96 View Post
Consider a car having a mileage of 10 km/ltr it would contribute to Rs.5 as taxes per Km travelled, at the same time an EV would be be only costing a total of Rs.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 government respond to this in future, would they be overcharging the customers for electricity. Would like to hear other BHPians opinion.

P.S. Didn't find a similar topic hence started a thread. Mods please merge to similar topic.
Doesn't EVs all reduce our Oil import bill once they take off in the mass market. The reason for high taxation on oil products is we are oil importing nation, once EVs become main stream this can reduce it 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.
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Old 18th October 2021, 15:27   #3
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Default re: Effect of Electric Vehicles on the government's revenue? Fuel taxes contribute to 2% of GDP

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How would government respond to this in future, would they be overcharging the customers for electricity
There're million different ways, this one summarizes...
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Old 18th October 2021, 15:33   #4
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Default re: Effect of Electric Vehicles on the government's revenue? Fuel taxes contribute to 2% of GDP

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How would government respond to this in future, would they be overcharging the customers for electricity. Would like to hear other BHPians opinion.
Benjamin Franklin said - The Only Two Certainties In Life Are Death And Taxes

I can think of few ways a government can compensate for revenue shortfall:
1. Higher levies on electricity
2. Additional tax for car owners calculated based on usage of the car (per km of travel). This can be given a cool name like Congestion tax.
3. Significantly increased taxation on batteries
4. Higher parking fees

My best guess will #2 listed above. This way, government can decouple the revenue from the type of fuel being consumed (in the long run) and can actually charge by consumption of road and associated resources.

Pretty sure there will be no impact on the exchequer whether we drive ICE cars, move to Electric Vehicles or even start riding horses for our transportation needs from tomorrow.

Last edited by warrioraks : 18th October 2021 at 15:51.
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Old 18th October 2021, 15:43   #5
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Default re: Effect of Electric Vehicles on the government's revenue? Fuel taxes contribute to 2% of GDP

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Doesn't EVs all reduce our Oil import bill once they take off in the mass market. The reason for high taxation on oil products is we are oil importing nation, once EVs become main stream this can reduce it a large extent.
This argument is irrelevant and obsolete. It was valid many many years back when prices at pump were artificially kept low, and government had to compensate OMCs for that. Fuel was subsidised, and any reduction in usage meant 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 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 loose. And the people are always screwed.
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Old 18th October 2021, 20:21   #6
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Default re: Effect of Electric Vehicles on the government's revenue? Fuel taxes contribute to 2% of GDP

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Originally Posted by warrioraks View Post
I can think of few ways a government can compensate for revenue shortfall:
1. Higher levies on electricity
2. Additional tax for car owners calculated based on usage of the car (per km of travel). This can be given a cool name like Congestion tax.
3. Significantly increased taxation on batteries
4. Higher parking fees

My best guess will #2 listed above. This way, government can decouple the revenue from the type of fuel being consumed (in the long run) and can actually charge by consumption of road and associated resources.
I also feel that the government would be implementing the point no. 2. I read about the concept called VMT Tax(Vehicle miles travelled Tax) in a report but it would have its own hurdles, maybe we would find odometer tampering a common issue.

Adding news articles related to this topic.
1.30% EV share may cut oil bill by Rs 1 trn, but hurt tax revenue too: Study

2.Impacts on state revenue

3.Promotion of electric vehicles in India: Revenue implications may lead to fiscal stress for govt.

4.Electric vehicles can help increase government revenue, not shrink it: Report.

One of the articles mentions that buying of electric vehicles would lead to financial savings by a family which would ultimately be spent on some other goods and services on which taxes would be collected, but I think these taxes wouldn't match the tax charged on fuel which is 260%. On of the reasons why fuel is not included in GST is too because of this as max percentage tax in GST is 28%.
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Old 18th October 2021, 20:49   #7
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Default re: Effect of Electric Vehicles on the government's revenue? Fuel taxes contribute to 2% of GDP

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This argument is irrelevant and obsolete. It was valid many many years back when prices at pump were artificially kept low, and government had to compensate OMCs for that. Fuel was subsidised, and any reduction in usage meant lesser loss to be reimbursed.
The argument is very much valid today. In the first quarter of this year India's petroleum imports stood at approx. $25 billion, ie $100 billion in imports every year.

So instead of that $100 billion circulating within the Indian economy, every year the equivalent amount gets sucked out of the country by some random oligarch.

It impacts the fiscal deficit, strength of the rupee, vulnerable to oil price fluctuations and most importantly the country has zero energy dependence.
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Old 18th October 2021, 21:54   #8
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Default re: Effect of Electric Vehicles on the government's revenue? Fuel taxes contribute to 2% of GDP

This is how.

https://www.team-bhp.com/news/gps-ba...oll-booths?amp

Starts with highway tolling based on GPS whatever, and it will end in a situation where the meter starts running the moment you take your car out on public roads.

Not to say the taxes will go back to old levels when most cars become EVs. They will find the engine cc equivalent or something to base taxes/excise on.

Don't fret. The government may have already thought it through and are having the last hurrah with 50%+ tax on fuel.
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Old 19th October 2021, 07:06   #9
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Default re: Effect of Electric Vehicles on the government's revenue? Fuel taxes contribute to 2% of GDP

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The argument is very much valid today. In the first quarter of this year India's petroleum imports stood at approx. $25 billion, ie $100 billion in imports every year.
And how much is the revenue earned from it? Approx 4L crore or about $500 billion. Crude is the raw material you buy to run your factory. And this factory is MASSIVELY profitable. More than covers all kinds of input costs, and then generates huge returns.

In what other business are raw material costs just 25% of your profit? Of profit, not sales.

Last edited by Shreyans_Jain : 19th October 2021 at 07:08.
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Old 19th October 2021, 07:37   #10
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Default re: Effect of Electric Vehicles on the government's revenue? Fuel taxes contribute to 2% of GDP

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Originally Posted by Shreyans_Jain View Post
In what other business are raw material costs just 25% of your profit? Of profit, not sales.
Crude prices are at 84$ or 6300₹, 1 barrel =159litres, which means 1litre crude oil costs ~40₹. So I believe input costs are 33% of the sale price, but again shipping, refining & Transportation takes the cost to 50₹.

Increasing toll prices is a better way for the govt to earn.
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Old 19th October 2021, 08:40   #11
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Default re: Effect of Electric Vehicles on the government's revenue? Fuel taxes contribute to 2% of GDP

In the 80's and 90's, reliable power supply was non existent. Naturally businesses opted for Gensets.

However, if you had a genset above x capacity, you had to pay the government money for every unit power generated. Mind you, this was the time when the government had the sole monopoly in generating power (except for Mumbai, but that's a different story)

I won't be surprised if a similar law is created to offset the "loss" of revenue.
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Old 19th October 2021, 09:19   #12
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Default Re: Effect of Electric Vehicles on the government's revenue? Fuel taxes contribute to 2% of GDP

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 public charging costs 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 prominent presence on our roads.
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Old 19th October 2021, 09:41   #13
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Default Re: Effect of Electric Vehicles on the government's revenue? Fuel taxes contribute to 2% of GDP

The only way to ensure you can run your EV cost effectively is to install solar panels at your work place to charge your EV. That's assuming you work during the day (like most people) and park the vehicle at home during the night.
This works well for those who are self employed as you would be owning your work place.
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Old 19th October 2021, 10:55   #14
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Default Re: Effect of Electric Vehicles on the government's revenue? Fuel taxes contribute to 2% of GDP

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Originally Posted by GTO View Post
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 public charging costs 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 prominent presence on our roads.
These charges are already way higher, Tata power charges Rs21/unit. EESL in Nagpur charges an eye watering Rs.33/kWh.
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Old 19th October 2021, 11:16   #15
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Default Re: Effect of Electric Vehicles on the government's revenue? Fuel taxes contribute to 2% of GDP

I am going to assume here that once the evs took 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 roof top is installed ofcourse.

Last edited by corvus corax : 19th October 2021 at 11:18.
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