GST reduction, scrappage policy: What the auto industry wants from Budget 2020

The automobile industry is in the middle of a prolonged slump with domestic sales volumes in all vehicular segments up till Q3 of 2019 witnessing a sharp decline.
GST reduction, scrappage policy: What the auto industry wants from Budget 2020
GST reduction, scrappage policy: What the auto industry wants from Budget 2020
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The automobile industry is in the middle of a prolonged slump with domestic sales volumes in all vehicular segments up till Q3 of 2019 witnessing a sharp decline as passenger vehicles and commercial vehicles have reported 16% and 21% drop, respectively. Muted customer demand due to liquidity crunch and higher cost of finance and insurance is believed to be the main reason. 

The Society of Indian Automobile Manufacturers (SIAM) President Rajan Wadhera says, “Increased cost of BS-VI may affect demand, hence we have also requested the government to reduce GST rates for BSVI vehicles effective 1st April from 28% to 18%.” SIAM has also demanded an incentive-based vehicle scrappage scheme for removal of old vehicles.

Putting his weight behind a scrappage policy, Naveen Soni, Senior Vice President, Sales & Services, Toyota Kirloskar Motor, says, “The auto industry is willing to share its portion towards realising such scrappage policy, which will eventually have a more sustainable impact on the environment.”

“Setting GST on electric vehicles at zero percent, instead of five percent, will make EVs more affordable. At the same time, custom duty on other EV components should be increased drastically towards a Make in India push for global leadership in EV sector,” says Sulajja Firodia Motwani, Founder, and CEO of Kinetic Green and Vice Chairperson, Kinetic group.

Calling for some major reforms in reviving the auto industry, Ruchit Agarwal, Co-founder and CFO, CARS24 says, “Although, pre-owned car market has sustained the momentum and is growing at a faster rate. With more customers (especially the first time buyers) preferring to purchase pre-owned cars, reduction of GST rate to at least 5% can help in making them more affordable and hence will help in increasing the auto sales.

Another key move which can add value to the auto sales is vehicle scrappage policy, which is much awaited reform. Selling a car is usually considered a lengthy and chaotic task by many. With ease in Interstate transfer of older cars by RTO, it will be more convenient for customers to secure their most preferred cars from across the regions. Considering the startup ecosystem, we are really hoping that ESOPs should be taxed at liquidity which will be a beneficial move for emerging companies.”

Ola Mobility Institute says, "India’s new mobility economy market is expected to touch $90 billion by 2030, making it a key driver for India to become a $5 trillion economy. As India marches to become a global hotspot for electric mobility, a critical step in that direction is recognising battery swapping as a viable charging mechanism for two-wheelers and three-wheelers. This requires policy interventions such as including battery swapping in FAME-II, treating electric vehicles and batteries as separate entities and extending demand incentives for both, reduction of GST on Li-ion batteries and earmarking funds for R&D to develop batteries locally.

Overall, the mobility economy can unlock massive livelihood opportunities for India and easy access to finance will be a critical enabler towards inclusive growth. The Jan Dhan-Aadhaar-Mobile (JAM) trinity can be augmented to usher holistic financial inclusion through utilisation of alternative data such as digitised cash flow available with platforms. The government must capitalise this data by: a) Building trust-scores for lending b) Streamlining KYC norms through uniform tiered KYC and eKYC c) Extending credit guarantee schemes such as MUDRA to those engaged on digital platforms."

Atul Arya, Chair – Urban Mobility Panel, IET FoMT Focus says, “Fleet operators operating only electric fleets should be incentivised with lower rates of capital to ramp up the investment. No GST should be charged on them for the first year as they are adding new modes of transport and competing with the unorganised sector which anyways doesn’t pay GST. There should be easier finance at attractive rates for enabling change in buying behaviour as e-vehicles are still higher in cost vs internal combustion engine (ICE). Batteries should be able to get FAME II subsidy even when they are sold without vehicle.”

Battery As A Service needs to be encouraged and should be provided at no GST as this is a big enabler for adoption. Charging services should be exempt from GST as they compete with fossil fuels which are out of GST ambit. Many companies have car lease for employees, it should be incentivised by way of lower income tax for companies for the amount they spend on these, lower or no GST for the leasing companies providing these cars. Subsidy should be given to instal chargers in office parking lots of these companies.” 

Dr Jaijit Bhattacharya, CEO & Founder at Zerone Microsystems says, “Both components and finished goods for electric vehicles and charging infrastructure should be moved to zero GST regime, in order to promote local manufacturing and avoiding duty inversion. Fiscal incentives should be provided to all modes of electric transportation such as metros, electric trains, electric vehicles, electric kick scooters etc. in order to reduce pollution and help improve the electric transportation ecosystem. Local discoms should not charge a premium for electricity provided to charging stations and zero stamp duty regime should be brought in on land used for setting up charging infrastructure.” 

India being a developing country has to think differently about the electrification of mobility, says Devendranath AM, COO, Feedback Business Consulting. He adds, "This would need some out of box ideas as well — while incentivising new electric vehicles is fine, steps should be taken to encourage retrofitting of existing vehicles with our homegrown technology experts. I am sure this country has many firms who could build a good electric power train for most of the commercial vehicles. So some form of incentives / encouragement to adapt retrofitted vehicles will be beneficial."

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