Govt puts plan to cut GST on certain categories of automobiles on hold

The automobile industry's demand for lowering of Goods and Services Tax or GST levied on certain categories of their products is not likely to find favour with the government in the near future.


The automobile industry’s demand for lowering of Goods and Services Tax or GST levied on certain categories of their products is not likely to find favour with the government in the near future.

Top finance ministry sources said that with the sales of vehicles across the spectrum picking up, the proposal to look into a possible rate cut has been put on hold.

The healthy uptick in production and sales has reduced the urgency in the government to set into motion a cut in the GST rate charged on automobiles. The other big reason for the recalibration is the absence of vehicle inventory with manufacturers as they are transiting from Euro IV to Euro VI emission norms.

After the easing of the Covid-19 restrictions, the Indian automobile industry has registered a growth of 14.7% in June this year. The total domestic sales rose to 12,96,807 units as per the latest SIAM (Society of Indian Automobile Manufacturers) report. This is in comparison to 11,30,744 units sold in June 2020.

While a rise of 4.03 per cent was witnessed in domestic two-wheeler sales, domestic passenger vehicle sales rose by 119.31 per cent to 2,31,633 units in June 2021 from 1,05,617 units in the same month last year

At the same time, the total vehicle production jumped by 54.73 per cent to 16,93,639 units in June 2021 from 10,94,554 units in June 2020, vehicle export shot up by 81.70 per cent to 4,47,319 units in June 2021 from 2,46,190 units in June 2020.

An indication about the rethink had come from Revenue Secretary Tarun Bajaj on Wednesday when he did not commit to a rate cut while stating that the government is open to discussing rate revision.

At a conference organised by SIAM on Wednesday, he had said “I would be very happy to engage with you to see what we can do even on GST tax rates, what is the tinkering we can do to see to it that certain (vehicle) segments get the encouragement they deserve.”

Currently, all automobiles excluding electric vehicles and ambulances attract 18 and 28 per cent GST. Over and above this, a 1 to 22% cess is levied.

The next level of taxation on automobiles comes at the state level as they charge a road tax.

The GST burden on electric vehicles and ambulances is lighter. Till September 30, the GST levied on ambulances is 12% and for electric vehicles, it’s 5 per cent.

Exactly a year ago, in September last, with automobile sales hit by the first wave of Covid-19 and stringent lockdowns, at the 60th annual conclave of the Society of Indian Automobile Manufacturers (Siam), Union Cabinet ministers including Nitin Gadkari, Piyush Goyal and Prakash Javadekar had listed out a series of possible measures such as a scrappage incentive scheme and reduction in the GST rate to help the revival of the auto sector.

The then Union Minister of Heavy Industries and Public Enterprises had said, “The demand push has to be done immediately. The GST Council will have to take into account the revenue impact and other factors. I hope you get some good news very soon.”

The ministers had indicated that the GST Council would consider the industry demand of 10 per cent GST cut across categories of vehicles.

Finance Minister Nirmala Sitharaman at a meeting organised by the industry chamber on lowering of levy on automobiles had commented, “This category was neither a luxury nor a sin good and hence could be considered”.

However, the GST Council is yet to take up the matter in its last two meetings.

Meanwhile, at the SIAM event on Wednesday, Chairman, Maruti Suzuki India RC Bhargava, said, “I don’t think the car industry would revive either with internal combustion engines or with the CNG, biofuels or EVs unless we address the question of affordability of cars for the customer.”

He had added that factors like high tax, increased costs to meet new emission and safety norms are making them unaffordable for consumers.

At the SIAM event, manufacturers had highlighted that 2-wheelers which are the most basic model of transportation are taxed at the highest tax slab of 28 per cent which is equivalent to the tax attracted by luxury products.

The SIAM contends that the Indian automobile industry provides direct and indirect employment to 3 crore people. The industry is also worried over the prevailing high fuel prices. A senior auto manufacturing unit official said, “In 18 state capitals in the country, petrol is selling at over ?100. The rising fuel prices combined with high taxes on automobiles are keeping demand suppressed.”


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