Despite falling volumes, auto industry divided on GST rate cut proposal to 18%

The month after month fall in vehicle demand may have raised the chatter for putting automobiles in a lower GST (Goods & Services Tax) bracket to spruce sales.

However, the industry is divided on this proposal and not every automobile maker is on the same page.

While SIAM (Society of Indian Automobile Manufacturers) is seeking a 10 percent reduction in GST to 18 percent, Maruti Suzuki Chairman RC Bhargava has opposed the proposal.

Bhargava said the government’s vision of providing inclusive growth and improving infrastructure cannot be met with a cutback in revenue streams effected with the proposed cut in GST. Bhargava though was not the only senior executive from the automobile sector to have opposed the idea.

In February, SUV-specialist Mahindra & Mahindra’s (M&M) Managing Director Pawan Goenka echoed similar sentiments when two-wheeler makers including Hero MotoCorp, Bajaj Auto and TVS Motor Company raised a clamour for a GST cut.

Goenka had counter argued that the current rate of GST on two-wheelers is at par with the earlier tax rate of excise and Value Added Tax (VAT) and does not require changes.

Motorcycle and scooter makers had argued that it was unfair that two-wheelers were kept in the highest tax bracket of GST. Only three percent of the products come under the highest tax bracket.

In May, Rajan Wadhera, President of SIAM and also President of Automotive Sector, M&M, said the apex industry body had sent its recommendations to the government seeking a GST cut after new launches and sky-high discounts failed to bring back customers to showrooms.

For a cut Other industrialists are staunchly advocating a rate cut. Speaking to Moneycontrol, Venu Srinivasan, Chairman and Managing Director, TVS Motor Company, said costs in the last one-and-a-half year have risen around 40 percent and to offset such a rise there is an urgent need for a rate cut.

“The GST reduction should come because BS-VI is putting a lot of pressure. We have already been through three to four major cost increases, particularly in two-wheelers. Thanks to a Supreme Court order, third-party insurance premiums have gone up. Before that it was Bharat Stage IV, now we have BS-VI. These changes have resulted in around 40 percent increase in costs over an 18-month period. Customers are having a huge amount of sticker shock,”  Srinivasan said.

The 28 percent bracket is also defined as those products, which are either luxury or sin goods. With more than 21 million buyers of two-wheelers last year, a motorcycle, scooter or a moped should not be defined as a luxury item, say auto industry veterans.

Pune-based motorcycle-specialist Bajaj Auto’s Managing Director Rajiv Bajaj said a GST cut is needed to offset the hike in costs, following the BS-VI implementation next year.

“The increase in costs have pushed two-wheelers to be priced like luxury products and it’s only fair that when so many products are getting taxed at a much lower GST, two-wheelers are charged at such a high GST rate. Equally important is that the NBFC crisis be resolved by making money available to customers,” Srinivasan added.

Passenger vehicles comprising cars, SUVs and vans are taxed at 28 percent before being slapped with a cess ranging from a percent to 22 percent, pushing the applied duty to be in the range of 29 percent to 50 percent. All two-wheelers, except those above 350cc, are taxed at 28 percent. Above 350cc bikes are taxed at 31 percent.