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Economic Survey 2020: GST reduction on autos will hit revenues, Council against any reduction

Cutting GST to 18 percent from the current 28 percent would have offset the 10-15 percent increase in vehicle prices due to BS-VI

January 31, 2020 / 05:42 PM IST

Reduction in the Goods & Services Tax (GST) was the most popular demand by auto makers to help them tide over the prolonged slowdown. The GST Council, however, is against any such rate reduction fearing revenue impact, the Economic Survey stated.

The Society of Indian Automobile Manufacturers (SIAM), the apex lobby body of vehicle makers, in addition to several entrepreneurs including Pawan Munjal of Hero MotoCorp voiced their concern over the demand situation for automobiles that has remained weak for several quarters.

Their primary demand has been to bring down GST to 18 percent from the current 28 percent, which will offset the 10-15 percent increase in vehicle prices brought about by the implementation of Bharat Stage VI (BS-VI) emission norms from April 1.

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“GST rate structure on auto and auto parts has been discussed and debated significantly in last few months. The auto sector contributes significantly to GST revenue. Therefore, any change in GST rate of automobiles and parts will have a significant implication to revenue and compensation requirement. The Council did not recommend any change,” said the Economic Survey 2019-20.

Multiple hikes in insurance premiums, safety-related regulatory changes, easing of axle load norms, fuel price hikes, lending crisis in the NBFC space, uncertainty over the future of BS-IV vehicles and tighter lending norms by banks are some of the reasons why auto demand has remained subdued for several quarters.

Cost of cars is estimated to have risen by an average of 20 percent in the past 12-14 months due to mandatory additions like airbag, reverse sensors, ABS, crash conformity standards and upgradation to BS-VI emission standards. Several popular carlines have already been upgraded to BS-VI norms.

There was a 14 percent decline in automotive volumes in 2019 to 23.07 million units, data supplied by the SIAM revealed. During the April- December period, sales of cars slumped 24 percent while two-wheelers declined 16 percent.

After BS-VI implementation from April 1, the industry expects retail demand to remain dull for at least two quarters, with a hope of a pick-up seen only during the festive days.

The Survey also felt that the reasons for the slowdown in demand for new vehicles can be attributed to external factors. “It was felt that temporary auto slowdown may be attributable to certain other reasons such as lack of credit, base effect (as in last few years auto sector has grown rapidly) and structural changes like adoption of newer fuel standards from BS-IV to BS-VI from April 20 etc,” it added.

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first published: Jan 31, 2020 03:21 pm