by Amit Bhagat
With only a few days to go before the newly appointed NDA Government 2.0 presents its full-scale Budget for 20 19-20 on July 05, expectations from various stakeholders are mounting. With GST subsuming most of the indirect taxes except Customs Duty, it is obvious not many surprises are expected on indirect tax front.
However, as witnessed during interim Budget presented by Mr. Piyush Goyal earlier this year, Government is expected to introduce policy level changes which could be further ratified during subsequent GST Council meetings, wherever required.
As it is customary, the Ministry of Finance recently invited suggestions from various industry players in the run-up to upcoming Budget. The Ministry has also met with certain industrial bodies (e.g. SIAM, FICCI, etc.) seeking recommendations on Budget 2019-20.
India boasts of world’s 4th largest automobile industry and has witnessed a tremendous growth in the recent years. The auto industry has witnessed mixed performances in the Indian market during the past year. However, passenger vehicle sector has been witnessing a slow down as it has grown only 5% during April – November 2018.
This has been largely due to dried-up consumer credit on account of current shadow banking crises, increased insurance premium, high fuel cost, etc. resulting in weak buyer sentiment, piling-up inventories, forced temporary shut-downs and sluggish job growth.
Automobile industry is now eagerly looking towards forthcoming Budget for some serious Government intervention.
The Customs Duty incidence on Semi Knocked Down and Completely Knocked Down units must be reduced to promote further local value addition. If this is also coupled with further direct tax benefits on R&D, this would help automobile manufacturers a great deal in achieving Bharat Stage IV emission standards.Amit Bhagat
• Rationalisation of Customs Duty on Commercial VehiclesCustoms duty @25% is applicable on commercial vehicle Completely Built Units or CBUs which are imported into the country and the same should be further increased. While it could impact the imports in the short run however, in the longer run this would further promote indigenisation and domestic value addition in India, lending impetus to Government’s “Make in India” initiative.
At the same time, the Customs Duty incidence on Semi Knocked Down and Completely Knocked Down units must be reduced to promote further local value addition. If this is also coupled with further direct tax benefits on R&D, this would help automobile manufacturers a great deal in achieving Bharat Stage IV emission standards.
• Incentivise buying of Green Vehicles
Currently, there is no significant production of electric vehicles in India and the same needs to be promoted. To achieve this, it is imperative that certain guidelines are introduced for priority-lending to Electric Vehicle sector coupled with higher subsidies to buyers of electric vehicles.
In the recently concluded 35th GST Council meet on 21st June, a rate cut on electric vehicles to 5% from existing 12% and on charging equipment from 18% to 12% was expected. However, the same has now been referred to fitment committee for fine-tuning.
It is also expected that Government would provide certain tax holidays for manufacturers of electrical vehicles as well as setting-up of infrastructure for charging facilities for such vehicles.
Seeking such incentives would also boost Government’s flagship manufacturing scheme “Make in India” and drastically cut down on the vehicular pollution in the country.
• Incentive based vehicle scrappage policy
The Government has been in discussions over a policy which aims to phase out vehicles older than 15 years from Indian roads. While this has been implemented in States like Delhi, nothing concrete on this front has been finalised yet which could be implemented uniformly across India. Government may look at providing one-time tax benefits for those scrapping their old vehicles e.g. GST rebate, no road tax, subsidized finance, etc.
Such a scrappage policy would create a significant replacement demand. According to industry estimates, the policy could create an incremental demand for 6-7 lakhs Medium and Heavy Commercial Vehicles over next 2-3 years.
• GST rate cut on Two Wheelers
Under GST, two-wheelers are taxed at 28% along with additional cess. Two wheelers being a mass mobility item are consumed by common man, hence, higher GST on the same is proving a deterrent for the two-wheeler market.
It should also be considered that prices of the vehicles would increase due to transition to new safety regulations and BS-VI emission standards starting for FY 2020. Hence, a rate cut in GST will reduce the cost to ultimate customer.
• Reduction of GST Compensation Cess
To help ensure states get adequate tax revenues, the Government of India created levy of compensation cess on specific de-merit goods such as tobacco, aerated beverages, motor cars, etc. Currently, compensation cess is applicable on all types of vehicles. It is thus suggested that compensation cess should only be made applicable on luxury vehicles.
Removal of compensation cess on commercial or common man motor vehicles would result in reduction of cost for the ultimate customer.
• Rationalization of Tax Rates
The Industry also expects the Finance Ministry to rationalize the tax base for automobiles with no more than two rates for cars, instead of multiple tax rates prevalent currently.
Currently, Government’s focus is on agricultural advancement of the country. However, keeping in view Mr. Piyush Goyal’s opening remarks at the time of Interim Budget “India would lead the world in transport revolution through electric vehicles and energy storage devices bringing down import dependence and ensuring energy security for our country”, it is appropriate that expectations of the auto industry are also met in the Budget of 2019-20.
* The writer is a tax expert.
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