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Car prices may reduce post 20th Sep if Govt decides to reduce GST

GST rate cut car prices
Image for reference.

Speaking about measures taken by the government to address the slowdown in the automotive industry, Finance Minister Nirmala Sitharaman stated that the GST rate of automobiles could be brought down. Currently, automobiles are categorized under highest GST slab of 28% which is one of the primary demotivating factors for prospective customers.

In a bid to make vehicles less polluting and safer, the government has come up with several regulations and norms. While such a move inevitably inflate the vehicle pricing significantly across the segments, it needs to be done.

So, as the auto industry is in the process of transformation (from BS-VI to BS-VI emission standards and from outdated safety regulations to crash tests and mandatory features) it is imperative for the government to avoid adding further burden on consumers and automakers with high taxation.

Highest decline in car sales since SIAM started recording wholesales data in 1997/98. MS = Market Share. Growth is in green.

The stakeholders of the industry unanimously agree that the GST rate of 28% is too high for automobiles. Responding to queries from the media, Finance minster stated that the government has communicated its recommendation to cut the GST rate for automobiles to the GST Council which will take the ultimate decision. General expectation is that the reduction in taxes is expected to be formally announced in the coming weeks.

The government recently undertook a few measures to rescue the ailing automotive industry. The proposed one-time hike of the vehicle registration tax has been deferred till June 2020 and the depreciation rate of vehicles bought by corporate has been increased from 15% to 30% (applicable for vehicles purchased till April 2020).

The government also lifted the ban on public organizations from purchasing new vehicles to renew their aging fleet in the hope that this would boost demand. There are also talks about having an organized vehicle scrappage scheme.

The wholesale (dispatch) figures for the month of August 2019 have arrived and the situation continues to be gloomy. The country’s largest passenger car maker by far, Maruti Suzuki, has registered a YoY fall of 36% at 93,173 units. Tata Motors’ Passenger Vehicle Business unit registered a colossal sales decline of 60.3% during the same period. In fact, every OEM in the PV segment posted YoY sales decline last month. The turnaround appears to be far away but we hope the govt reduces the GST on automobiles and eases some pressure.

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