The government will reportedly take a proposal to reduce GST rate on automobiles to the GST Council.

Govt looks to cut GST rates on automobiles as slump in car sales continues
Money Auto Slump Monday, September 02, 2019 - 19:19

The central government may try and put forth reduction of GST on automobiles amid the continued slump in the industry, reports Mint. The GST on Automobiles is currently 28%, the highest tax bracket. Facing its worst slump in years, the industry growth fell by over 30% in the month of August.

Since the overall economy itself has been facing de-growth, and there have been reports of job losses in the sector, the government may want to move in and try the tax-reduction formula to reverse the slowdown.

Observers are not sure if the present drop in sales of automobiles, particularly passenger cars has anything to do with the tax rates. There are two or three scenarios being presented. One explanation is that many car buyers are waiting for the BS VI vehicles to roll out, which might result in the BS IV cars being sold at huge discounts by the auto companies.

The other reason being cited earlier was the crisis being faced by the NBFCs due to which the vehicle buyers were not getting sufficient financing to buy vehicles. The overall slowdown in the economy was also pointed out as a reason for the sector not being able to sell as many cars as they used to during these months the year before. According to the August sales figures just out, the top six companies sold 1,71,193 vehicles in August 2019 against 2,59, 925 they sold in August 2018, a fall of 34%.

The question before the GST Council and the finance ministers representing the different states is how any reduction in the GST rate on automobiles will impact their revenue collections going ahead. The GST collections for August dropped below the Rs 1 lakh crore mark. If the centre convinces the Council that at a reduced rate, if the automobiles sales pick up, the revenue loss will net neutralized, the states may agree.

Most players in the sector, starting with Maruti Suzuki to Tata Motors have posted lower sales last month. It remains to be seen if the GST Council agrees to a rate cut.

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