Indian states oppose tax cuts on vehicles to bail out distressed manufacturers

Friday, 13 September 2019 10:51:39 (GMT+3)   |   Kolkata

Several state governments represented in the Goods and Service Tax (GST) Council, the apex body governing indirect taxes have refused to agree to a cut in tax on automobiles as a bailout package for the industry in distress, a government official said on Friday, September 13.

State governments of Bihar, Kerala, West Bengal, Punjab have stated that they will not favor a reduction in tax on automobiles from 28 percent to 18 percent as sought by the industry, at the forthcoming GST Council meeting on September 20, the official said.

While the central government submits proposals for changes in tax rates before the GST Council, the final decision is taken by the latter and any changes that are not supported unanimously in the council do not get passed and hence any opposition from a state government is expected to scuttle the incentive plan for the distressed auto manufacturers which has suffered fall in sales for 10 consecutive month and currently at a 22-year low.

The state government said that reduction of tax rate on automobiles from 28 percent to 18 percent will result in loss in revenue to the central government of about $7 billion in a full fiscal and any lower revenue collection by the central government will result in lower allocation of funds from the central government to the state governments, the official said.

In view of the opposition from the state government and hence ruling out possibility of any unanimity at the forthcoming GST Council meeting, the central finance ministry has asked each auto company to reach out to the state governments individually to bring them around to the proposal of tax cut.

After ten consecutive month of fall in sales, auto companies reported passenger car sales of 196,524 during August 2019, down 31 percent over the corresponding month of the previous year.

Total sales of medium and heavy commercial vehicles of top four manufacturers during August 2019 was reported at 31,067 units, down 60 percent over the corresponding month of the previous year.

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