Toyota Urges India to Reduce Hybrid Car Taxes by Up to 21% – Official Correspondence

By Maggie On Oct 23, 2023

In a recent correspondence, Toyota Motor, a prominent global automaker, has called upon the Indian government to consider substantial tax reductions for hybrid vehicles. The company argues that hybrids offer a significantly more eco-friendly alternative to petrol cars and thus deserve more favorable policy treatment.

Despite plans to expand its production capacity to meet the growing demand for hybrids in India, Toyota has encountered a tax obstacle. Prime Minister Narendra Modi’s administration has been focused on promoting electric vehicles (EVs) and has offered substantial incentives to encourage the development of EVs and batteries. Presently, India taxes EVs at just 5%, while the levy on hybrid vehicles is considerably higher at 43%, just slightly below the 48% tax imposed on petrol cars.

Toyota asserts that this 5-percentage-point tax advantage for hybrids over petrol vehicles is “insufficient” considering the reduced emissions and superior fuel efficiency hybrids provide. According to a letter addressed to Modi’s Niti Aayog think-tank, which plays a pivotal role in policymaking, Toyota recommends a tax differential of 11 percentage points for hybrids and 14 points for flex-hybrids.

This would translate to tax rates of 37% for hybrids and 34% for flex-hybrids, representing potential reductions of up to 14% and 21%, respectively, based on Reuters calculations. In the letter dated September 20, Toyota’s India country head, Vikram Gulati, kindly requests “proportionate policy support” from the government.

Toyota, renowned for popularizing hybrid technology with models like the Prius, has faced criticism from investors and environmental groups for its continued support of hybrids. However, the company argues that hybrids make more sense in markets lacking the necessary infrastructure for EVs.

While Indian giants Tata Motors and Mahindra & Mahindra endorse EVs, Toyota and Honda Motor are advocating for support for hybrid vehicles. Although Toyota declined to comment on the letter, the company emphasized that the “most optimal way” to reduce carbon emissions involves a combination of electrified and alternative energy options, including both EVs and hybrids.

As of now, India’s tax structure, coupled with the use of typically more expensive powertrain components, makes the production of hybrids “30%-35% costlier than its petrol counterparts,” according to Toyota.

In addition to tax reductions, Toyota is also urging the Indian government to include hybrid cars in an existing incentive program that currently applies only to EVs. The company’s multi-pathway approach, which includes the development of EVs and hydrogen-powered vehicles, aligns with its commitment to address the climate crisis. However, it remains to be seen how the Indian government will respond to Toyota’s appeal for more favorable treatment of hybrids in its quest for cleaner mobility solutions. Niti Aayog has not issued a public response to the request at the time of this writing.