Govt disappoints two-wheeler companies with no GST relief

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Finance Minister Piyush Goyal provided no relief on goods and services tax (GST) to automobile companies, disappointing two-wheeler companies categorised under the luxury and sin goods segment. In January, two of India’s top four two-wheeler makers sought relief from the government to move two-wheelers to the 18 percent GST slab from 28 percent. Hero Motocorp Chairman Pawan Munjal and TVS Motor Company Venu Srinivasan had suggested two-wheelers be moved to the more affordable tax bracket. Rajiv Bajaj, MD, Bajaj Auto who had supported the call for a tax cut said it was important to time the tax cut as well. Their comments were based on the fear of an expected slowdown in demand for motorcycle and scooters in the coming months with the implementation of new regulations and upgradation of vehicle technology as prices will shoot up substantially.

Two-wheelers are taxed in the same bracket (labelled as luxury and sin goods segment by the government) as mini cars, even though the consumer base is significantly larger with sales of more than 21 million units a year. The Hero MotoCorp chairman argued the cost-sensitive buyer depends on the two-wheeler as a lifeline and a sharp increase in the prices of two-wheelers following the new set of safety and emission regulations will be detrimental to the industry. “With new safety norms and BS-VI integration also around the corner, both of which will increase two-wheeler prices, it has become imperative to relook at the GST rates for two-wheelers to ensure social inclusion that is sustainable in the long run,” said Srinivasan. The two-wheeler industry will brace for more than one upward revision in price over the next 15 months.

These will be as a result of the new safety norms from April 1 this year and the new emission standard norms from April 1, 2020. A combination of these will likely result in an increase of a minimum of Rs 8,000 (almost 20 percent jump) in prices of budget (100cc) two-wheelers. Currently, more than half of TVS’ sales come from scooters, which is where it has cemented its place as India’s second-largest scooter manufacturer. In the same price band, Hero sells its largest-selling motorcycle Splendor. Though both segments cater to different buyers, they fall in budget-buy segments, making them vulnerable to any hikes. The two-wheeler segment has grown by nearly 10 percent to 16.53 million units during the April-December period, as per data provided by the Society of Indian Automobile Manufacturers. The segment has bucked the broader trend of a slowdown that has reduced the growth of the auto industry significantly.

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