Government Considering Tax Cut To Make Vehicles More Affordable

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Due to the ongoing multi-year sales slump in the Indian automobile market, the government is open to lowering taxes on vehicles

The Government of India is mulling reducing taxes on automobiles, in order to increase their affordability. The tax cut has been proposed following the multi-year sales slowdown across various segments in the automobile market of our country, which has lasted for years now. The move is expected to help increase vehicles sales, thus lifting the auto industry out of its current slump.

It should also be noted that vehicles have become significantly more expensive now, compared to the last few years. This year alone, we’ve seen multiple price hikes by various manufacturers. The biggest reasons for that are the increasing costs of raw materials and transportation, the latter being heavily affected by fuel prices.

At the 61st Annual Meeting of the Society of Indian Automobile Manufacturers (SIAM), Revenue Secretary Tarun Bajaj was quoted saying, “We do not expect rates to go down at this stage, but we are happy to see what we can do to encourage certain segments of the market”, as reported by Economic Times. Bajaj has asked stakeholders to submit data related to car price hikes in recent years, in order to assess the situation.

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The Revenue Secretary has also noted that the sales of SUVs have been growing stronger in the Indian car market in recent times, while the sales of small cars have been falling. This is despite the fact that GST on smaller cars is lower, at 28 per cent, while SUVs are charged with higher GST and additional cess.

Vikram Gulati, Country Head and Senior VP of Toyota Kirloskar Motor, stated that the tax cut would help the market recover after two devastating waves of the pandemic. Some believe that the taxes were too high to begin with; Maruti Suzuki Chairman RC Bhargava said that with low levels of income in the country, affordability is affected by such high taxes. He also stated that Japan, European Union, the US, etc., have significantly lower taxes.

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It should be noted that while the pandemic has affected the Indian automobile industry severely, the market slowdown had begun way before. Concerns about falling vehicle sales were already making headlines in the first half of 2019.