Budget 2020: Auto industry expectations range from GST cuts to another EV boost

Budget 2020: Auto industry expectations range from GST cuts to another EV boost
  • Auto leaders are looking for GST cuts in the upcoming budget, especially as they transition to BSVI.
  • Experts think that Electric Vehicles will continue to be a point of focus for subsidies in the auto industry.
  • The auto sector which has been caught in a slowdown is looking forward to reliefs in the upcoming budget.
The upcoming Budget 2020 is very crucial for auto manufacturers who are desperately seeking a push from the government. The sector which is caught in throes of a slowing economy, is hoping the Finance Minister can break the vicious cycle of falling sales and steeper discounts.

As BSVI comes in, GST cuts a need of the hour

On the top of the many requests of the sector is a GST cut.

According to a PTI report, industry leaders have asked for GST cuts from April onwards as newer vehicle emission norms of BSVI come into play. “As a win-win situation, we are requesting the government to consider reducing GST on BS-VI vehicles to 18% from the current 28% from April onwards," said the report.

The transition to BSVI vehicles is one of the reasons for its lacklustre sales, as consumers wait for newer models. Meanwhile, for auto manufacturers newer norms would mean high priced inventory transition as well.

“The Industry has already been very vocal in seeking concession in GST. Industry leaders have also been advocating for auto to be excluded from categories (like alcohol and tobacco) which qualify for sin tax and therefore increase the overall tax burden in the sector,” said Vinay Raghunath, Partner at E&Y.

Raghunath says that the auto sector in India is a key contributor to industrialization and GDP growth, reforms are necessary. “It will be important for the government to allay the fears of OEMs when it comes to sudden changes in the regulatory and tax regimes (eg: registration, insurance etc.) which may further impact the already weak consumer sentiment,” said Raghunath.

We are champions not sinners, say auto company heads

Industry leaders haven’t been shying away from seeking relief. In December 2019, Bajaj group head Rahul Bajaj questioned the government.

“There is no demand and no private investment, so where will growth come from? It doesn’t fall from the heavens. The auto industry is going through a very difficult period. Cars, commercial vehicles and two-wheelers are going through a rough patch,” Bajaj said.

Others too have been speaking out. Anand Mahindra, chairman of the Mahindra group who is vocal on Twitter too spoke about the need for reforms in the upcoming budget.

"Since 7 percent of the gross domestic product (GDP), 16 percent of the goods and services tax (GST) collection and 50 percent of the manufacturing comes from auto industry – the government should treat this as a champion industry rather than a sin industry and support it in terms of lowering the cost of acquisition and also through some financial means then it would be great,” Shashank Srivastava, senior executive director at Maruti Suzuki told CNBC Tv18.

What the government has done so far

In August 2019, Finance Minister Nirmala Sitharaman brought in some much needed changes for the auto industry. “BS-IV vehicles purchased until March 30, 2020 will be allowed to run on the roads for the duration of the registration," she said.

Any vehicle that is bought until March 2020 will be eligible for 30% depreciation, twice that of the then rate of 15%, she said.

During the Union Budget presented in July 2019, Sitharaman had kept the GST at 28% but brought in other relief. She gave a 2% grant to auto component manufacturers, while customs duty was raised from 25% to 30%.

In focus: Electric Vehicles

In the last Budget, the government provided subsidies to boost electric vehicles.

“To make electric vehicles affordable to consumers, our government will provide additional income tax deduction of ₹1.5 lakh on the interest paid on loans taken to purchase electric vehicles. This amounts to a benefit of around ₹2.5 lakh over the loan period to the taxpayers who take loans to purchase electric vehicles,” Sitharaman had said during the budget in July.

Indian auto manufacturers like Tata Motors, Maruti Suzuki, Mahindra & Mahindra have a slew of EV launches in 2020, who are all hoping to reap them. However, in the last budget, the government gave relief to consumers who want to buy EVs. Experts hope that the upcoming budget will bring in measures which will boost EV infrastructure in the country.

“The Government may not be willing to look at additional subsidies on EV-passenger vehicles but can help by further allocations to charging infrastructure (beyond current allocations) to look at decreasing the total cost of deploying EV charging stations and speed up adoption across the country,” said Raghunath.

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