India’s two-wheeler industry is the largest in the world. But being taxed (GST) at the same level as luxury cars, automakers raised issues with the government’s taxation policy.
The demand for automobiles is unlikely to revive anytime soon as buyers are finding it difficult to buy cars and two-wheelers due to the continuous increase in costs and no respite in taxes, said R C Bhargava and Venu Srinivasan, two of India’s biggest names from the automotive industry.
“The rates of GST are more than double in India, compared to the EU, Japan or the US, and given the lower income levels in India, the question of affordability comes in. GST is not the only thing. States have this one-time road tax, which takes the tax rate to 37-38 percent on cars. Do we need the kind of high taxes we have? I don’t think the automobile market is going to revive ,” RC Bhargava, Chairman, Maruti Suzuki India, said.
Bhargava was speaking at the 61st annual convention of the Society of Indian Automobile Manufacturers (SIAM), which saw the participation of NITI Aayog CEO Amitabh Kant, Revenue Secretary, Ministry of Finance, Tarun Bajaj, and a host of other CXOs from automobile companies.
‘Not seen any action to reverse industry decline’
“The Centre and states must reconsider high taxes on automobiles. Green mobility will not take off unless we address the question of affordability. We haven’t seen any action on the ground to reverse the decline of the auto industry. India is not looking at incomes, paying capacity and job creation while making mobility plans,” Bhargava added.
Overall automobile volumes in FY21 in the domestic market pushed the industry back by six years, according to SIAM data. FY21 volumes for passenger vehicles were the lowest since FY16 and two-wheeler volumes the lowest since FY15. Sales of commercial vehicles in FY21 were the worst in 11 years, while for three-wheelers, they were the lowest in 19 years.
2-wheelers taxed at the same level as luxury cars
“Is the automotive sector being recognised for what it has contributed to the environment, to revenues, and to foreign exchange earnings? And that is the question Mr Bhargava raised,” said Venu Srinivasan, Chairman and Managing Director, TVS Motor Company.
India’s two-wheeler industry is the largest in the world. The vehicle is largely considered to be a basic necessity in the family rather than a luxury. But being taxed (GST) at the same level as luxury cars, automakers raised issues with the government’s taxation policy.
“The price of the moped has gone up by 45-50 percent. GST on two-wheelers is the same as a luxury-level product but is a basic mode of transportation. The switch to BS6, cost of ABS, Supreme Court ruling on mandatory purchase of three-year insurance, and a one-time tax have pushed prices of two-wheelers higher. I think we have given away too many low tax benefits on other products which has made one of the major engines of growth globally to stall,” Srinivasan added.
Car industry hitting peak production capacity
Responding to the above concerns, Tarun Bajaj advised SIAM to do an analysis on the reasons behind the downturn in the sector. “SIAM should do a deeper analysis and come back with what changes you require. Is COVID-19 the issue or something else? We need to understand what has led to the fall in demand since 2017-18,” Bajaj said.
To be sure, the car industry is hitting peak production capacity, with several companies starting the third and final shift at their plants. Waiting periods have stretched to 6-9 months on certain models, because of lack of availability of semiconductors.
“SUVs are doing very well but compact cars are not. I am seeing a new model launch almost every day and there are waiting periods on some models. So there is a need to do a thorough analysis on why the automotive sector is in the condition it is in”, Bajaj added.