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Govt officials defend auto sector taxation, want companies to improve efficiency, cut cost

GST rates on automobiles are less than what VAT and excise duty rates used to be in pre-GST times, sources said.

September 18, 2020 / 08:50 PM IST

Responding to reports that high taxation is causing a demand slump and difficulty in scaling up for auto industry players, finance ministry sources said that there has been complete certainty in the auto sector taxation in India and certain concessions have already been provided to electric and hybrid vehicles.

"Most established auto sector players have been in India for quite some time and are used to the regulatory and taxation environment and have flourished in this regime. It is evident from the huge payouts in the form of royalty made by these auto companies to their parent companies located abroad," the sources said.

GST rates on automobiles are less than what VAT and excise duty rates used to be in pre-GST times, the sources pointed out. India’s tax policy on automobiles has been quite consistent for the last three decades, in the form of allowing foreign investment and incentivising the domestic manufacturing by providing reasonable protection from imports, they say.

"Industry has on its part delivered. It has contributed by way of large investments and employment. All of a sudden, dissent in some quarters on tax rates is surprising," the ministry sources observed.

A top government source rebuffs the argument that India has relatively higher taxes on automobiles. “No, that is not true. The GST on automobiles is in the highest bracket across the globe without exception," the person opined.


Automobiles are subject to taxation on the higher side. Japan currently has three types of taxes on automobiles – once on purchase, then an annual automobile tax based on engine size and finally a weight tax at inspections, required every two years. Over and above this, there is GST at the highest of the applicable rates.

In the EU, the base rate for VAT/GST on automobiles ranges from 20 percent to 25 percent with plotters of other taxes varying with jurisdiction. The UK charges vehicle excise duties which vary with car emission norms and has 14 rate slabs varying from £0 a year to

£2,175 a year with surcharge of £325 in the first year and £150 for expensive vehicles. Besides, there are road usage charges. High parking charges are common across the globe. Most of the countries provide certain concessions to electric vehicles. Given this, it would be unfair to claim that the GST rates in India are astounding or a demand dampener.

A tax expert added that with the introduction of GST, multitude of taxes in the form of excise duty, special excise duties, cesses, VAT and CST gave way to uniform GST. Vehicles, based on their high pre-GST incidence were placed in 28 percent slab. Passenger vehicles also attract compensation cess ranging from 1 percent to 22 percent. However, with compensation cess the taxes have not gone beyond pre-GST incidences except

maybe in few that were enjoying certain duty concessions.

Amidst slowdown, COVID pandemic and stricter environmental norms, a milieu of pessimism created around the auto sector in various media reports has often flogged the government and its policies (especially taxation) for being against the interests of the auto sector, but “it was incorrectly made out in media that the high taxes on automobiles are driving down demand in the country”, said the same other source cited above, adding that fact of the matter is that the Indian market and its consumers are a discerning lot.


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Moneycontrol News
first published: Sep 17, 2020 08:57 pm
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