GST Fitment Committee Opposes Tax Rate Cut On Automobiles
The Indian automotive industry is going through a tumultuous time and one of the ways a temporary relief can be obtained is by cutting the GST level on cars from the existing 28% to 18%, even if temporary. But the GST Fitment Committee (a committee of GST Council officials reviewing GST reduction requests from various industries) says increasing GST levels for automobiles would result in a major revenue loss. Last Friday, the GST Fitment Committee met to discuss the automotive industry’s request to take the GST rate down from 28% to 18% to help the industry maneuver across muddy waters.
The auto crisis has not been caused by high GST levels. The total tax of Pre GST including service tax ranged from 32% to 54%. Now tax including Compensation Cess ranges from 29% to 46% only. If Centre is keen to reduce, it should further abolish Cess . The rate would come down to 28%.
The GST Fitment Committee said that reducing GST rates on auto sector, which is one of the biggest revenue contributors to the state, could potentially be devastating in terms of revenue. In fact, the committee put a figure to it, saying such as cut could bring down revenue by ₹ 50,000 crore annually. Out of this amount, ₹ 22,000 crore will be the result of cutting GST rates for auto components. According to the panel, India’s auto industry’s total revenue is equivalent to about 3 trillion a year.
Repeating similar sentiment, Kerala’s finance minister Isaac Thomas is also opposed to automotive GST cut. Kerala Finance Minister Thomas Issac, speaking to IANS, said that lowering tax on vehicles would not help but result in a loss of revenue for the states. “I’m not in favor of the idea (reduction of GST rates) at all. Central government can afford to lose revenue but we can’t. They should go for fiscal policy extension,” Issac said. He indicated that if necessary, the Center could eliminate the cess portion to support the automotive industry.
Speaking at the annual meeting of the Automotive Component Manufacturers Association (ACMA), Anurag Thakur, Minister of State for Finance & Corporate Affairs, said that the next meeting of the GST Council will take place on September 20, 2019 and that a decision will be taken to reduce GST rates on cars from 28% to 18%. He also encouraged automobile manufacturers to try to meet with the governments of individual states before approaching the GST council.