(Mint file)
(Mint file)

Auto sector seeks cut in GST to help revive sales in festive season

  • A lower tax rate would allow firms to reduce their vehicle prices, potentially attracting more buyers, says Siam
  • Domestic sales of passenger vehicles fell 30% from the year earlier in August

An automobile industry body on Monday sought an immediate cut in the goods and services tax (GST) rate on vehicles to help revive sales during the crucial festive season.

A lower tax rate would allow companies to reduce their vehicle prices, potentially attracting more buyers, the Society of Indian Automobile Manufacturers (Siam) said.

“The series of announcements on credit availability and reducing the cost of credit do not seem to have percolated down to the NBFCs (non-banking finance companies) which support the bulk of finance for the automotive industry. Consumer sentiment also continues to be low and there is clearly a trust deficit in lending money to the dealers," said Rajan Wadhera, president, Siam.

Domestic sales of passenger vehicles fell 30% from the year earlier in August. Commercial vehicle and two-wheeler sales also fell, indicating that the steps announced by the government last month have not had any impact yet.

The Union government on 23 August announced several measures such as mandating government agencies and departments to replace old vehicles, increasing depreciation on new vehicles for commercial fleet service providers, urging banks to make auto loans cheaper, and increase credit availability to NBFCs.

Finance minister Nirmala Sitharaman also assured buyers and manufacturers that vehicles compliant with Bharat Stage IV emission norms registered before 31 March 2020, will be able to run for the entire registration period or the life of the vehicle. “All this while, the industry has pulled out all stops in offering attractive deals and discounts to the consumers. However, the ability of the industry to provide large discounts is limited and this only highlights the need for government to consider reducing the GST rates from 28% to 18% which would significantly reduce the cost of vehicles and in turn create demand," Wadhera said.

With automobile sales staying weak for several months, companies have been forced to temporarily shutter plants and lay off contract workers. The companies are also expecting some stimulus measures from the government to revive sales.

Sitharaman on Sunday said the GST Council may consider a cut in the GST rate on automobiles provided the state governments are also on board.

The Automotive Component Manufacturers Association of India (ACMA) and Federation of Automotive Dealers Associations (FADA) have reached out to some of the state governments to lobby for a rate cut during the GST Council meeting on 20 September.

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