Exclusive: Tax relief unlikely for auto sector in next GST Council meeting

The upcoming Goods and Service Tax (GST) Council meeting is unlikely to provide tax relief to automobile sector, which has been explicitly vocal about the troubles  faced by the industry amid the pandemic and called for a reduction in taxes.  

Sources close to the development have told Business Today that the issue is unlikely to be part of the agenda for the Council meeting on 17 September.  A top finance ministry source told Business Today on condition of anonymity, “It is highly unlikely that the Council will take up the matter in the upcoming meeting. Let alone the upcoming meeting, GST reduction on auto sector will not be possible in the near future.”  

Officials in the Central Board of Indirect Tax and Customs have looked into the matter and maintained that the incidence tax on auto sector under the GST regime is marginally lower than that of the pre-GST rates.  

“Auto industry has been demanding GST cut but they need to understand that the incidence of tax on the auto sector was slightly lower after GST rollout compared with the pre-GST tax incidence on automobiles,” a CBIC official said.  
GST on sub-4 meter car with engine capacity of 1.2L is 29 percent against 31.5 percent in the pre-GST regime. Similarly, a diesel model with more than 1.5L capacity attracts GST of 31 percent compared with pre-GST tax incidence of 33.25 percent.

Almost similar is the case of other vehicle categories such as sports utility vehicles larger than 4 meter where the total incidence of tax has come down by 12 percent compared with the pre-GST regime. In non-SUVs larger than four meters too, the tax burden under GST has come down by 8.6 percent. Officials also maintained that it was high input cost, safety upgrade and semiconductor issue that is actually hurting the sector and not the taxes.

In an industry body webinar in August-end, industry captains like Maruti Suzuki Chairman R C Bhargava and TVS Motor Chairman Venu Srinivasan got into a face-off with the government on GST rates. While Bhargava said on the public forum that the government lacked “concrete action on ground” even though “lot of statements are made on the importance of the auto industry”, Srinivasan seconded the opinion. The industry leaders made the statements in presence of revenue secretary Tarun Bajaj.  

On his part, Bajaj too retorted saying that the government cannot decrease taxes without knowing whether that will actually lead to a corresponding increase in the auto sales.   “I am keen to understand the reason behind the fall in numbers after 2017-18 for a sector that promised high growth a few years back. If taxes are reduced, it will force the government to borrow more. This can have a negative impact on the macroeconomy. A 360-degree view must be taken before making a decision,” said Bajaj.

Officials also pointed out revenue still being a concern, it will be difficult to announce any major changes in GST slab. Even as the August GST revenue at Rs 1,12,020 crore was up 29% year on year, it was down 3.76% from Rs 1.16 lakh crore in Juy this year. Sources pointed out that at best, the Council may take up correction of duty inversion which is affecting certain sectors like footwear. GST on footwear is 5% while the industry pays 18% on raw materials, which is currently hurting the margins.

Also read: GST Council to meet next on Sept 17; compensation cess on agenda