India’s goods and service tax (GST) rate for automobiles at 28 per cent is lower than pre-GST times and in line with global rates as most other countries put automakers in the highest tax brackets, finance ministry sources said, adding that the ‘sudden dissent’ from industry was not justified.

“GST rates on automobiles are less than what VAT and Excise duty rates used to be in pre-GST times,” said a senior official, asking not to be named.

“World over, automobiles are subject to taxation on the higher side,” he added, pointing to examples of Japan and the EU. Japan has three types of taxes – on purchase, an annual automobile tax based on engine size and a weight tax at inspections every two years – on top of which there is GST. In the EU, the base rate for value added tax (VAT) or GST ranges from 20 per cent to 25 per cent.

The UK charges vehicle excise duties which varies with car emission norms and has 14 rate slabs varying from £ 0 a year to £ 2175 a year with surcharge of £ 325 in the first year and £ 150 for expensive vehicles, besides road usage and parking charges.

The government’s view came in response to key voices from the auto industry blamed ‘prohibitive’ taxes for dampened consumer demand amid the Covid 19 pandemic, which in turn was leading to companies halting their investments into expanding manufacturing facilities.

Maruti Suzuki chairman RC Bhargava said in an interview with ET that the government should re-examine the tax structure on automobiles so as to bring down the purchase cost for consumers to drive up demand. Japan’s Toyota has shelved plans of expansion in India as its existing capacities are under-utilized.

However, government officials said that India has always provided complete certainty in taxation to the auto sector while certain concessions have been provided to electric vehicles and to hybrid vehicles.

“All of a sudden, dissent in some quarter on tax rates on automobile is surprising,” the official added, asking not to be named. Auto makers should increase investments, become more efficient, reduce costs and royalty payments instead of asking the government to reduce taxes, he added.

“If the regulatory environment was not conducive, it would be hard to imagine new players like Jeep, Kia Motors and MG investing heavily into manufacturing facilities,” the official said.

A second official said that while the auto sector was going through a slump in production due to demand slowdown amid the Covid 19 pandemic, green shoots were becoming visible.

As of August 2020, domestic production of two-wheelers was higher than last year same month – at 18.59 lakh units – up from 3 lakh units in May 2020. Sales of passenger vehicles were also up to 2.16 lakh units from 1.89 lakh units in August 2019, as per SIAM data.

Officials noted that the base effect emanating from the industry’s rapid growth rapidly post 2014, the NBFC crises, the shift in customer choices, millennial shying away from owning vehicles, the focus on stringent standards for checking pollution, mandatory BS VI compliance since April this year, and transition to electric vehicles usage with policy tilting towards encouraging electric vehicles were contributing to the upheaval in the industry, not so much the tax policy of the government.

Government policies have also been benefitting this segment. Higher protection from imports, lower import duties on parts and auto manufacturing has helped in building the whole eco-system for automobile manufacturing in India.

Source Article