Despite recent assurances by India’s Heavy Industries Minister, Prakash Javadekar, that he would consider a cut in the GST (Goods and Services Tax) for the country’s auto industry, this does not now seem likely. The country’s beleaguered auto sector has been urging the government to reduce the GST, complaining about a multiplicity of taxes- GST, cess on GST, state road/registration tax, which have affected affordability and made it hard to drive sales. India’s auto industry was suffering from a slowdown even before the devastating impact of the coronavirus pandemic and resulting lockdown. The contraction of the Indian economy and the transition to BS6 norms have compounded the woes of the auto sector.
On August 25, the country’s finance minister, Ms. Nirmala Sitharaman, suggested during a closed-door virtual meeting of the Confederation of Indian Industry (CII), that the government might revise the GST on two-wheelers from the highest rate of 28%, since they are neither “luxury nor sin” goods.
However, a government official claimed the finance minister was commenting on two-wheelers only and not regarding the entire automobile sector, which already enjoys a low corporate tax regime. While no official announcements have been made yet, government officials recently revealed that it has been communicated to auto industry representatives through the Ministry of Finance, that foreign auto companies operating in India through their subsidiaries should consider reducing royalties paid to their parent companies if they need to cut costs, instead of seeking a reduction in the GST on automobiles ranging at 28%.
The government is said to have communicated to the industry that taxes on the auto industry in India have remained nearly stable over the past decade and several official incentives are already being offered for domestic manufacturing and import protection. The government officials noted that GST rates on automobiles are less than what was prevailing under the earlier value-added tax (VAT) and excise duty regime. India introduced a uniform GST tax regime in July 2017. Vehicles, based on their high pre-GST incidence, were placed in the 28% slab. Passenger vehicles also attract compensation cess ranging from 1% to 22%.
Government officials also said that the body governing the GST, the GST council, will not be persuadable regarding any cut in taxes at a time when the Indian economy is reeling from the coronavirus crisis.