States Opposing Cut In Tax Rate On Auto Sector

Share this Post

New Delhi : Ahead of the festive season when Indians traditionally bring home their new set of wheels, the prospects of Auto Sector getting a tax relief in the next GST council meet on September 20 has run into a twin road block.

While the government is keen to go for a reduction in GST rate cut from 28 per cent to 18 per cent for the auto sector, the move’s negative fallout in the form of huge loss in revenue collection and opposition from states has become a hurdle.

The Fitment Committee, a panel of officials of the GST council, met on last Friday and examined the possibilities and implications of a GST rate cut to arrest the slowdown in the domestic Auto Sector industry which is showing no signs of ebbing.

Post examination, the Fitment Committee has come up with a view that reduction in tax rate will bring down collections by over Rs 20,000 crore.

The gross GST collection in August, 2019 stood at Rs 98,202 crore, up by 4.51 per cent as compared to Rs 93,960 crore in the same month last year.

This GST collection level, although higher on year-on-year basis, was still lower than government’s expectations of Rs 1 trillion.

Interestingly, the opposition to a reduction in GST rates for the auto sector is not coming from the states with big auto-making hubs like Tamil Nadu and Gujarat, but from states like Kerala, UP, Bihar and others.

It’s because GST is a destination tax and higher tax rate brings greater revenue from auto sales in states which are the “consuming states”.

The Fitment committee will take this assessment to the GST council meeting scheduled on September 20 in Goa and there are dim chances of a quick decision on the issue.

However, a State finance minister who is a member of the GST council said,”It’s not merely a call of the GST council but a political call as well. If the Centre wants a rate cut to boost the auto sector, it has to get everyone on board.”

At the recently held Automotive Component Manufacturers Association (ACMA) event, junior minister of finance, Anurag Thakur said, “The government has received requests from various sectors for a GST rate cut and the government has been analysising the demands.”

He had added that the government is keeping its doors open for taking the issue to the GST council but most decisions there are taken unanimously.

In an attempt to convince the states which are opposing a GST rate cut, the finance ministry has been asking representatives of various sectors to reach out to individual state finance ministers who are also part of the GST council.

The focus now will be on the GST council meet in which things may depend on the level of consensus over the tax rate cut. If the council doesn’t take up the issue, it may get referred back to the Fitment Committee.

Auto sector insiders say that to emerge from the ongoing slowdown, cuts will have to be made as the approaching festival season is a major sale window.

The auto makers feel the customers have put purchases on hold expecting reduced price offers during the festival period.

The second in command of an auto giant said, “Customers expects us to cut prices. But the auto makers are in no position to do so. That’s why the government should clarify the situation as soon as possible. If the tax cut is not coming, the auto industry will have to find other ways to meet consumer expectations.”

The time is also a crucial period for the economy. While the government can’t risk further revenue losses and a rise in fiscal deficit, the economy is crying for interventions for a turnaround.

With the growth plunging to 5 per cent in the last quarter, the government is under pressure to revive things by the time the next quarter data comes up.

Usually due to monsoons, August witnesses slugging sales and tax collections. Any stimulus for sales and consumption is being cited as the perfect antidote.

Source : India Today


Share this Post

Leave a Reply

Your email address will not be published. Required fields are marked *