The talks for lowering the goods and services tax rate is going on for the auto industry, because of the massive slowdown in the sector, which might prompt the GST Council to declare a rate cut for automobile components as well as sub-four metre cars when the council meets on 20th September.
Though the tax break shall be a temporary impetus towards boosting the demand, and the cut in the GST rate might be stated only for a limited period. It was speculated that the existing rates might be restored after near about 6 months. This is for the reason that raising tax rates when it is reduced is a politically tough call.
Anurag Thakur, the Minister of state for finance also stated that the automotive industry must reach out to state chief ministers and must request them to be on the same board for a reduction in goods and services tax (GST) rates on vehicles to increase sales in the local market, which is in the middle of a persistent slowdown.
The Centre is likewise considering providing some relief towards other sectors, particularly in the unorganized segment, but a difficult economic position might not permit it to go for a liberal rate cut across businesses. Officials have stated that it would remain to be seen if cement, as well as larger cars, would get any tax relief.
However, discussions were held on whether to cut both GST rates and the cess on automobiles as well as auto components. Presently, cars, bikes and mopeds attract the highest GST rate of 28% with additional cess ranging from 1% to 22%, dependent on the length, size of the engine and kind of the vehicle.
For instance, the total tax rate on sports utility vehicles (SUVs), large cars, and mid-sized cars, is 50%, 48%, and 45%.
Though, dropping cess for the entire auto industry shall be a challenge, as it would considerably affect revenue collection. The Centre utilizes the cess to compensate states for their losses in revenue under the GST regime, a constitutional guarantee provided to state governments for the first 5 years of its implementation. If collection drops, the Centre has to look for resources elsewhere to meet this responsibility. The additional items attracting GST cess consist of tobacco products, pan masala and aerated drinks.
Although there is rising demand from the organized sector towards reducing tax rates to increase demand, the GST Council is also trying addressing the issues of the unorganized sector, which is also facing a crisis.
The agenda for the GST council meeting, however, shall be finalized only when state representatives meet in Goa on 19th September. Union ministers would discuss the proposals on the following day at the GST Council meeting.
The GST Council is planned to meet next in Goa on September 20th.
Conclusion:
Automakers were urging the government to cut GST rates on vehicles to 18% from the current 28% to recover demand in a market where total sales are projected to have failed 20% year-on-year in August.
The automobile industry funds as much as 49% towards the manufacturing GDP and hires 37 million people in the country. While the auto sector indeed needs a rate reduction, economic constraints might lead to an assessment of a phased reduction on certain classes of products in the sector.
The economic growth in India has slowed to 5% in the 3 months ended June, a six-year low, setting immense pressure on the Narendra Modi government to search for every possible way to stop the slowdown. Economists, though, stated the second half of the financial year would see faster growth.
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