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Explained | Why two-wheeler industry desperately seeks GST rate cut

The introduction of GST trimmed tax rate on two-wheelers to 28 percent from 30 percent. But with other safety and emission-related norms adding to the cost burden, the industry was anything but happy being in the highest GST slab rate.

August 26, 2020 / 06:27 PM IST

Finance Minister Nirmala Sitharaman during an industry interaction on August 26 said two-wheelers are neither luxury goods nor sin goods, and hence, merit a Goods and Services Tax (GST) rate revision. Two-wheelers currently attract 28 percent GST. Sitharaman said a rate revision proposal would be taken up by the GST Council.

Unlike four-wheelers, two-wheelers are the backbone of rural and semi-urban India. Experts have been warning of a slowdown for some time now with falling two-wheeler demand among the key indicators.

Pre-lockdown blues

The automobile industry has been battling slowdown blues for a while now. Even before the coronavirus struck, bringing economic activities to a screeching halt, the auto sector had started facing slow demand and industry representatives were trying hard to draw the government's attention to their woes.

Also Read: Two-wheelers neither luxury nor sin goods, merit GST rate revision: Finance Ministry

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GST, that was officially introduced in July 2017, relaxed the tax on motorcycles with engines under 350cc to 28 percent from the pre-GST rate of 30 percent.

However, the industry was not happy, particularly with other stringent emission and safety-related norms already raising the cost pressures.

The country’s largest two-wheeler maker Hero MotoCorp last year urged the government to consider a phase-wise reduction in GST on the segment, starting with bringing bikes up to 150cc in the 18 percent slab.

Apart from Hero, TVS Motor and Bajaj Auto also petitioned that a high GST rate along with mandatory combined braking system (CBS), anti-lock brakes (ABS), and a switch to Bharat Stage VI (BS-VI) emission norms would push up prices of two-wheelers.

Also Read: Rajiv Bajaj says two-wheeler prices could drop by up to Rs 10,000 if GST rate cut to 18%

Post-lockdown blues

The near three-month nationwide lockdown imposed to check COVID-19 spread slowed down economic activity considerably and some businesses are yet to come back to life even as the first phase of the unlock began in June. With the economy still not out of the woods completely, various agencies expect a GDP contraction in the first quarter of FY21.

As for the auto industry, the COVID crisis and the mandatory shift to BS-VI emission norms from April this year came as a double whammy. According to the Federation of Automobile Dealers Association (FADA), dealers nationwide were left with unsold vehicles worth Rs 7,000 crore, comprising 7 lakh two-wheelers, 15,000 passenger cars and 12,000 commercial vehicles.

Separately, nearly over 10 lakh two-wheelers, 2,250 passenger cars and 2,000 commercial vehicles have been sold but not yet registered.

With auto sales expected to in a free fall this fiscal, the industry has pressed the panic button. Passenger vehicle sales are expected to be at an 11-year low. According to industry projections, sales of passenger vehicles (cars, SUV/UVs, vans) for FY 2020-21 is expected to be at 1.91 million units, lower than 1.95 million units sold in 2009-10.

Volumes in two-wheelers (motorcycles, scooters and mopeds) are also expected to be lower at 12 million in FY21 versus 13.4 million in FY12.

Kamalika Ghosh