Tata Motors urges India to keep hybrid tax as Toyota seeks cut

India's top electric car maker Tata Motors is urging the government not to cut taxes on hybrid cars as they are more polluting than pure electrics, countering calls from Toyota for lower levies, according to three sources and a company letter.

India is promoting electric vehicles (EV) as part of Prime Minister Narendra Modi's drive to reduce pollution, taxing them at just 5%, while the levy on hybrids is as high as 43%, just below the 48% imposed on petrol cars.

That has upset the likes of Japanese automaker Toyota, which popularised hybrids with the Prius, and has since last year been urging India to cut taxes on them, saying they reduce carbon emissions compared to gasoline cars. Backing its position, India's trade department last month in an internal note urged a rationalisation of taxes on hybrid cars.

Tata has met officials and written to India's trade department, saying the country faces an urban air quality crisis with health implications, and hybrids should not be incentivised as they are already taxed lower than gasoline cars, said the three sources, who are familiar with the discussions.

"Any further incentivisation of hybrids will be a detriment to the climate goals and nation's economy," Tata wrote in a confidential letter to the department, contents of which were seen by Reuters.

The lobbying is the latest by Tata aimed at protecting its dominant EV market share. Tata is also pushing back against Tesla's attempts to secure lower levies for imported EVs, Reuters has reported.

India's trade department did not respond to a request for comment.

Tata's rivals, India's Mahindra & Mahindra and South Korea's Hyundai Motor, have also asked New Delhi to keep the current policy, discouraging any reduction in taxes on hybrids, the sources added.

Tata said in a statement that communicating with government was part of its regular business conduct and it believes EVs "are the only practical solution to fight India's epidemic of urban air pollution, as well as reducing oil imports".

Mahindra and Hyundai did not immediately respond to requests for comment.

Mahindra Managing Director Anish Shah said this week it had told the government there must be a level playing field between domestic and foreign EV players, and local manufacturing must be promoted.