Economic Survey dashes off auto industry's hope for GST cut

Economic Survey has dashed off the auto industry's hope for GST rate reduction citing GST Council is not in its favour fearing revenue impact. The sector has been passing through tough time and industry had made a strong case for GST cut to stay afloat in the economic slowdown.

“GST rate structure on auto and auto parts has been discussed and debated significantly in last few months. The auto sector contributes significantly to GST revenue. Therefore, any change in GST rate of automobiles and parts will have a significant implication to revenue and compensation requirement. The Council did not recommend any change,” said the Economic Survey 2019-20.

The Society of Indian Automobile Manufacturers (SIAM) and a couple of auto industry players had expressed deep concerns over the demand situation for automobiles which has been weak for several quarters. They had made a strong case for lowering the GST to 18% from 28% which will offset the 10-15% increase in vehicle prices brought about by the implementation of Bharat Stage VI (BS-VI) emission norms from April 1.

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The auto industry players cited that the industry last year recorded its worst-ever sales decline in two decades as a variety of factors spooked the retail buyer despite manufacturers offering never-seen-before discounts. They had argued that the GST reduction will boost the government’s tax revenue as a higher retail demand will generate an additional tax income. However, they said if there is no cut in GST, falling retail sales will translate in lower GST revenue.

Pratik Jain, Partner & Leader, Indirect Tax, PwC India Partner & Leader (indirect tax) Pratik Jain said the survey rightly points out that any change in GST rates on automobiles will have an impact on revenues. ''However, decreasing the rates could also lead to increase in demand and spur the economic activity in the sector. The Government may want to consider reducing the rates, even if it is temporary, on two wheelers and small cars,” he noted.

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