Kamal Parajuli

The government has eliminated excise duty and limited customs duty on import of electric vehicles (EV) between 10 per cent and 40 per cent. This will come into effect from upcoming July 1. It is in stark contrast to internal combustion engine (ICE) cars which attract excise duty upward of 60 per cent and customs of 80 per cent. Elated at the radical departure, social media lit up with congratulatory notes. But what if the policy change, instead, worsens equity and destabilises finances without contributing much to the environment?

Zero emission car
Scientists were alarmed at the fine particles and earth-warming CO2 fossil fuel cars emit. In 1990, California Air Resources Board (CARB) mandated big automakers to develop zero-emission car. Subsequently, GM introduced EV1, a two-seater coupe, in 1996.
The 16.5 kWh lead-acid batteries weighing 533-kg could drive the 1400-kg car for 97 kilometres. And it took eight hours to recharge. It cost $34,000 when average gasoline cars were available for $21,000. Unable to replicate the price, driving range, and refueling time of gasoline cars, the EV was doomed. GM discontinued it in 2003.
EVs have always faced a dilemma. Carry a large battery for an extended range and make the car heavy and expensive. Or, deploy a smaller battery to make the car cheaper and lighter, but sacrifice range. The conundrum paralysed the industry until the arrival of maverick Elon Musk. Sans baggage, he soon realized there was no scope for cheap mass-market EVs. Besides, it was wealthy who could care for the environment. So, he began with Roadster in 2006, the base price of which was $100,000.
Then, the battery alone accounted for half the cost of EV. Much resource has been poured into battery since. Tesla has developed tabless battery which will extend range by 16 per cent.
Today, the cheapest Tesla in the US – Model 3 – costs $37,990. Nissan Leaf and Chevrolet Bolt cost upward of $31,000. Prices of EVs have started to come down in India as well.
The government is required to promote equity. Progressive income tax is a tool. Waiving indirect taxes on necessities, and slapping hefty levies on luxury goods – well-off’s favorite – is another. Ironically, with farcical taxation on cars, the state ends up exacerbating inequity.
Similarly, the government should balance the state’s finances. Short of manufacturing, we survive by imposing tariff on imports. Duties levied on imported cars contribute tens of billions to the state. A rough calculation shows Tata Tigor EV could be available for around Rs. 2.8 million – a price identical to its petrol variant. So, if consumers switch en masse to EV, would the state be able to withstand the revenue loss? The recently unveiled budget reveals expected revenue of Rs. 1.025 trillion failing to cover even two-third of the proposed Rs. 1.65 trillion expenditure.
If the government insists that the state will be ok with reduced duties forever, then we are grateful for classifying personal vehicles as a necessity. However, given the unstable political climate with equally fickle policies, the middle class is anxious if the benefit would last when their turns arrive with EVs becoming affordable in the coming years. Instead, if the move was a desperate attempt to limit net emission of carbon, then it would be cheaper to conserve forest and plant trees for the time being. With per capita fossil CO2 emission at 0.3 tons, we are at the rock bottom of the polluters’ chart.
No doubt, EVs are the future of mobility. But no country has ever prospered by promoting import of finished consumer goods. It is instead manufacturing. Germany – the fount of ICE cars – to China – the world's largest auto market – are nudging their car industries to embrace revolutionary battery-electric technology lest they become obsolete with devastating job losses.

Environment conservation
If Nepal is serious about conserving the environment while simultaneously balancing its book, then it should simplify requirements and enact regulations to set up EV plants. Unlike intricate ICE cars which not even China could master, EVs only have electric engine, inverter and battery and can be assembled with relative ease. Besides, the addition of middle class as prospective customers would give impetus to EV manufacturers to set up their base. The outcome would create jobs, utilise hydroelectricity, lower air pollution, and conserve forex by reducing imports of ICE cars and petroleum.
If that is far-off then we could ban import of expensive ICE cars and limit the segment to imported EVs with tariff on par with ICE cars. No well-off would prefer rudimentary Maruti Alto to state-of-the-art EVs. However, a rebate could be offered to keep a lid on the price. Then, neither equity nor finances need to be sacrificed for the environment. And well-off need not be subsidised by the poor. Instead, riding EVs, affluents could pride themselves in their reduced carbon footprint. Something the poor cannot.

(Parajuli works with Himalayan Bank Limited. kamal.parajuli@himalayanbank.com)