Transport minister Nitin Gadkari on Thursday supported the auto industry’s demand for lower goods and services tax on hybrid cars and those running fitted with BS6 engines and promised to raise it with finance minister Nirmala Sitharaman.
“It is the industry’s demand that there should be reduction in tax on petrol and diesel vehicles. Your suggestions are good. I will take your message to the finance minister,” he said at the annual conference organised by auto manufacturers’ lobby group Siam, adding that even a temporary reduction would be beneficial.
“I will follow it up with the FM. The sector needs help right now to increase vehicle sales,” the minister said, amid repeated demands by the auto industry to lower taxes in the wake of falling sales. While cars are in the 28% slab, the smaller ones face 1% cess, while sedans and SUVs attract 15% cess, pushing up the overall liability to 43%.
He also advised automobile companies to set up in-house finance arms that could help generate sales.
The government has so far refrained from any tax reduction and has instead offered other incentives such as accelerated depreciation that will benefit fleet owners and commercial buyers. It believes that the auto industry has always pocketed the gains that were meant for consumers, although the Centre and states can invoke the aniprofiteering clause in case companies do not pass on a reduction in GST.
But the Centre alone cannot push for a reduction in GST since it needs to be cleared by the GST Council where states are almost an equal stakeholder. Officials at the Centre have, however, suggested that there is little fiscal space for a tax cut at the moment. But, a reduction on hybrids and BS6-compliant vehicles is unlikely to cause much strain on finances, given their low volumes at present.
The minister’s statement came amid a demand for succour from almost every auto company CEO. Gadkari said he would discuss possible export incentives for automakers in his meeting with the finance minister, in line with what has been given to the sugar industry, which has received fresh dollops of subsidies to tide over surplus production.