Industry wants tax cuts to counter BS-VI price increase

Representatives of leading automakers, including Toyota Kirloskar Motor India Pvt. Ltd, Maruti Suzuki India Ltd, Mahindra and Mahindra Ltd and Hero MotoCorp, said a cut in goods and services tax (GST) on automobiles will help the sector, which had been struggling for more than a year even before the covid-19 outbreak.

Automobiles are subject to a base GST rate of 28%, besides a cess of 1-15%. While two-wheelers with engines of up to 250cc attract 28% in taxes, entry-level petrol and diesel cars are taxed at 29% and 31%, respectively. Sports utility vehicles (SUVs), which are longer than four metres with engines of 1.5 litre or more attract 43% tax, including 28% GST and 15% additional cess.

A Bloomberg report on Tuesday quoted Shekar Viswanathan, vice chairman, Toyota, saying that high taxes on cars keep companies at bay from building scale in India.

“The message we are getting, after we have come here and invested money, is that ‘we don’t want you’," he said. The company does not plan to exit India, but it will neither scale up operations, he added.

Later in a statement, Toyota said the auto industry has been requesting the government to support the industry through a viable tax structure. Toyota’s cars, including Innova and Fortuner, attract 43% tax at the current GST rates.

A similar pitch to reduce taxes was made by India’s largest car maker Maruti Suzuki India Ltd recently. “We will eagerly wait for GST reduction and scrappage scheme," Kenichi Ayukawa, managing director and chief executive officer, Maruti Suzuki India, said earlier this month at an annual convention organized by the Society of Indian Automobile Manufacturers (Siam).

“The government will be able to offset revenue loss from a reduction in GST on automobiles through increased vehicle sales as companies pass on the tax benefits to consumers," Ayukawa added.

Prakash Javadekar, the Union minister for environment, forest and climate change, had also suggested that the Centre was evaluating the possibility of GST cuts for two- and three-wheelers to revive demand.

Siam estimates vehicle sales to decline 25-45% in FY21. During April-August, passenger car and utility vehicle wholesales fell 54% and 38%, respectively, year-on-year.

The pandemic has further forced major automakers to change their outlook, as they now expect sales to remain in the slow lane for another two years or so. They feel government support, such as tax cuts, will be critical to put the industry back on the growth path.

According to Toshihiro Suzuki, president and chief operating officer, Suzuki Motor Corp, the passenger car market may not reach 10 million units by 2030, as estimated earlier, on the back of the prevailing covid-19 induced economic slowdown, Mint reported on 5 September.