India’s automobile sector had requested the government for tax cuts recently to boost demand, however, the government has asked the auto makers to reduce royalty payments to their parent companies instead of seeking a GST cut.
According to media reports, the government has proposed reducing the cost of production by reaching greater efficiency levels rather than expecting tax cuts. At Society of Indian Automobile Manufacturer’s (Siam) 60th Annual Convention held recently via web conference, a possible GST cut was discussed along with a scrappage policy and reduction in imports.
Carmaker Toyota had recently said that taxes in India were too high which increases the cost of production, eventually burdening the consumer. India’s tax policy regime for automobile sector has been consistent since last three decades. The government has allowed foreign investment and incentivised domestic manufacturing by providing protection from imports.
The auto sector is a major consumer of metals and boosting sales will push production, which will support domestic industry. Auto sales have been improving gradually but several market participants believe that it is not enough. Compared to previous year, sales are still lower despite 2019 being a struggling year for sales.
In a recent interview Vinkesh Gulati, President Federation of Automobile Dealers Associations (FADA) told Davis Index that their body had requested the government to announce demand-boosting stimulus, along with reduction in GST for two-wheelers.
Gulati said FADA awaits the announcement of incentive-based scrappage policy. These measures are expected to act as ‘demand drivers’ for two-wheelers, medium and heavy commercial vehicles sales in India, making the auto industry a lead indicator for India’s growth.