Tax Relief

Unique: Tax relief for the auto sector unlikely on the subsequent GST council assembly

The upcoming goods and services tax (GST) council meeting is unlikely to provide tax breaks for the automotive sector, which has been explicit on the industry’s problems amid the pandemic and called for a tax cut.

Sources close to the development have told Business Today that the issue is unlikely to be on the agenda for the September 17th council meeting. A senior Treasury source told Business Today on condition of anonymity: “The council is very unlikely to take up the matter at the upcoming session. Not to mention the upcoming meeting, GST reduction for the auto sector will not be possible in the near future. ”

Officials from the Central Bureau of Indirect Taxes and Customs have investigated the matter, claiming that the tax on the automotive sector under the GST scheme is slightly lower than the pre-GST rates.

“The auto industry has called for a lowering of the GST, but it needs to understand that the tax incidence on the automotive sector after the introduction of the GST was slightly lower compared to the tax incidence on cars before the GST,” said a CBIC official.
The GST for vehicles under 4 meters and a displacement of 1.2 liters is 29 percent compared to 31.5 percent in the pre-GST regulation. Similarly, a diesel model greater than 1.5 liters will attract a GST of 31 percent, compared to a pre-GST tax incidence of 33.25 percent.

The situation is almost similar with other vehicle categories, such as sport utility vehicles with a length of more than 4 meters, for which the total tax burden has decreased by 12 percent compared to the pre-GST regulation. Even for non-SUVs over four meters, the tax burden according to GST has fallen by 8.6 percent. Officials also claimed that it was the high input costs, security upgrade, and semiconductor problem that were actually hurting the sector, not taxes.

In an industry association webinar in late August, industry captains such as Maruti Suzuki Chairman RC Bhargava and TVS Motor Chairman Venu Srinivasan confronted the government over GST rates. While Bhargava said at the public forum that the government is lacking “concrete action on the ground”, although “many statements are made about the importance of the auto industry,” Srinivasan agreed. Industry leaders made the statements in the presence of Finance Minister Tarun Bajaj.

For his part, Bajaj also replied that the government could not cut taxes without knowing whether this would actually lead to a corresponding increase in car sales. “I’m very interested in understanding the reason for the drop in numbers after 2017-18 for a sector that promised high growth a few years ago. If taxes are cut, the government will be forced to borrow more. This can have a negative impact on the macro-economy. Before a decision can be made, a 360-degree view must be created, ”said Bajaj.

Officials also pointed out that revenue is still an issue, it will be difficult to announce major changes in the GST plate. While GST revenue increased 29% year-over-year to Rs 1,12020 in August, it is down 3.76% in July this year, compared to rupees 1.16 lakh crore. Sources indicate that at best the Council can correct the tariff conversion affecting specific sectors such as footwear. The GST for shoes is 5% while the industry pays 18% for raw materials, which is currently reducing margins.

Read also: GST Council meets on September 17th; Compensation payment on the agenda

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