December 24, 2020

Tax Regulations On Electric Vehicles


In this article, as a continuation of our autonomous vehicles article series, the energy source of the cars of the future, namely, electricity will be discussed.

Although future fundamental structural changes will be realized in the automotive industry are foreseen, the vast majority of vehicles currently consume fossil fuels. The rapid increase in the world population, the use of fossil fuels as the unique source, especially in the industry and automotive sectors, causes the shortage of such reserves and causes irremediable damages to the world. As a result of this, providing clean energy resources has become a significant requirement for countries.

All around the world, especially in the overpopulated countries such as China and India, air and noise pollution have reached a threatening dimension for public health. At this point, the obligation to reduce vehicle emissions causing such pollution to a great extent, in other words, the necessity of using a cleaner energy source in vehicles, has led to the countries to use electricity namely as the main fuel in the automotive industry.

Nevertheless, these developments are the consequences shall not be the internal decisions of the countries solely. In accordance with the Paris Agreement signed by 197 countries, considering as the most common consensus text especially at the international level, signatory countries have to reduce fossil fuel consumption in order to reach the targets set but to reduce greenhouse gas emissions.

Electric Vehicle (“EV”) means any vehicle propelled, partially or exclusively, by means of a battery-powered motor. There are many reasons for such electric vehicles not being able to replace today’s vehicles. Some of these reasons, manufacturing cost and usage cost and  usage are higher than current vehicles and consumers do not prefer to charge which is hard –to-reach and time consuming instead of fuel and EVs cannot be driven for long-distance due to their battery-time. Under these circumstances, government incentives are critical regarding the encouragement of the use of the EVs.

In general, the incentives and supports provided by the governments can be grouped under the topics mentioned below.

  • Reducing the cost gap during manufacturing phase

In order to bring the price of EVs to the same level as the non-EVs, a financial support can be provided to manufacturers in terms of reducing manufacturing costs.

  • Funding for infrastructure of the EV charging stations

One of the strongest reasons for not choosing the EV is the perception of the customers regarding the inability of the EVs for a longtime trip. Such makes EVs unpreferable by the customers. The network of the EV charging stations should be improved. Currently, the majority of the charging stations are privately owned and non-governmental worldwide. Assuming that more than the current market share, the number of all kinds of public charging points should be increased by conducting works pertains to charging infrastructure of charging station network shall be on effective solution for resolving concerns of the customers refraining from the use of EVs and shall result in having more consumers for the EVs.

  • Tax exemption directly or indirectly to the customer at the time of purchase
  • Free of charge use of services such as highway, ferries and parking lots

Governments provide incentives and support from the manufacturing phase to the sales phase of the EV. Such financial supports may differ from amount regarding the released carbon values per kilometer, ability of the battery etc.

– China – China, following developments pertaining to the EVs have provided the consumer with a support of USD 10.000 approximately, to revive the automotive sector which deteriorated during COVID-19 by purchase tax in New Energy Vehicles. Some regional services are free of charge such as pass and parking area. Such supports have been provided manufacturers for a long time. It is aimed to maximize product technology and quality by cutting the support provided manufacturers with the latest regulations in 2020 for vehicles not meet a specific kilometer standard per battery accordingly.

– Norway – Especially with the regulations for the EVs in the incentives and city planning area made in recent years, Norway is the country achieving the most effective results in the world in terms of applicability. With the remitting of the purchase tax, a support of USD 10.000 is provided to the consumer. Furthermore, VAT exemption can be provided options with batteries in sales and rental, as well as EV owners are also exempt from toll taxes and charges and ferry fees. With the spread of the necessary infrastructure services for active use of the EVs more than 20% of vehicle the sales are now the EVs.

– France – Depending on the type of vehicle engine and carbon emission, the consumer who will buy the EV may be offered with a discount of up to EUR 10.000 in exchange. Also, exemptions from certain taxes are possible for companies buying the EV. In addition to this, it has been decided to replace the 50% of the France government fleet with the EVs as of 2017.

– Germany – Consumers may have a discount up to EUR 4.000 in the sale of the EV’s battery. Also, there are exemptions from certain taxes for companies and individuals buying such the vehicles. Half of these incentives are financed by government while the other half is financed by automobile manufacturers.

– United Kingdom – An amount of state spending up to USD 770.000.000 is planned to encourage to manufacturing and marketing of the ultra-low emission vehicles (“ULEV”) for the 5-year-period. Besides, privileges as free parking services and access to several traffic lanes are provided for ULEVs.

– United States of America – Tax advantages from USD 2.500 to USD 7.500 are provided with each manufacturer being limited to 200.000 vehicles. Some tax advantages in sale stage are also provided to consumer in several states.

– Turkey – In our country, the number of the EV models increase and alternatives are offered to the consumers. According to data of Electric and Hybrid Vehicle Association of Turkey obtained from the sales report for the first three months of 2020, the sale of the EV and hybrid vehicle sales increased 79% compared to the same quarter of the last year. The incentive provided by the government for the purchase of the EV for consumers is the rate of Special Consumption Tax (SCT). While the SCT rate varies between 45-160% in motor vehicles according to the cylinder volume, this rate is between 3-15% for the EVs. Additionally, some investments have been made to manufacture domestic EV. Although there is not enough regulation in this area in our country yet, such regulations are necessary in terms of both compliance with international regulations and catching the developments in the automotive sector it is anticipated that such regulations will be made.

Several states are planning to reduce the use of vehicles which consume fossil fuels to a certain percentage in the market, even prepare to ban them at the end of a certain time period. Such developments generate the necessity of reconstruction of the automotive industry very soon. In the meantime, the necessity is mobility rather than possession of such vehicle. Especially, new generation consumers prefer to public transportation or car rental rather than handling the expenses of having possession of a vehicle. In light of such preferences, long term rental agreements will become common and variant package agreements in the future will be necessary of the industry.