Government unlikely to offer GST concessions to auto companies
NEW DELHI: The government is unlikely to offer GST concessions to the auto sector as it believes that the current slowdown is the result of higher growth in the last few years, although pressure started building up in the second half of the last fiscal.
Officials said while auto sales were down over 17% in the first quarter of the current financial year, it was the high base that may have been responsible for it, as there was an over 18% jump during April-June 2018. “The industry had maintained good profitability for the last three-four years and like in any business there are periods of highs and low. It does not mean that we keep changing tax rates according to the industry cycle,” an officer told TOI.
Officials said several other countries are seeing muted demand and there have been instances in 2009 and 2014 when there was pressure on sales for a few quarters.
Last week, a committee of officers has rejected a demand for a GST rate cut from 28% to 18%, arguing that it was not justified and it would be tough to revert to the original rate once the levy is lowered. A reduction in rates for automobiles will have to be accompanied by a similar lowering for the components sector, which will together cost the exchequer Rs 55,000-60,000 crore annually.
Besides, a reduction in one sector can trigger similar demands from others, who have been lobbying for a cut for years.
In any case, as reported by TOI on Thursday, the government has little fiscal space to reduce rates, which may result in a higher cess on cars or broad-basing it to include more products.
A higher cess may actually impact two-wheelers and smaller cars more as they account for over 90% of the sales in the country. It is the larger cars that face 43% burden, which includes a 15% cess over the 28% GST. The section of the auto industry has argued that the current tax rate is “excessive” and needs to be pared, although industry leaders such as Maruti Suzuki and Bajaj Auto have been more cautious with the demand.
Apart from weak consumer sentiment, the industry has blamed multiple factors for the slowdown, including weak loan flow following the NBFC crisis, given that nearly 80% of the vehicles in India are financed. In addition, the weak demand in rural markets, higher cost due to rollout of BSVI and increase in initial insurance outgo due to mandatory purchase of third-party covers have been blamed for a sharp fall in demand. But several auto makers, led by the likes of Toyota, have put the blame on GST.