New Delhi: Automobile firms should look to reduce royalty payment to their parent firms to cut costs rather than seeking a cut in the Goods and Services Tax (GST) rate, say sources in the finance ministry.
According to a ministry official, there is complete “policy certainty”, and tax rates on automobiles are lower in the GST regime than in the earlier indirect tax regime of excise duty and value added tax (VAT).
The suggestions came in response to an interview of a top official of Toyota’s local unit, Toyota Kirloskar, to Bloomberg this week in which the company official said that taxes in India were too high, making purchase of cars expensive for buyers.
The company official went on to say that the firm was halting its expansion plans in India since the high tax rates made it difficult to expand their scale in the country.
Automobiles are taxed at the highest tax slab of 28 per cent under GST. In addition, a GST cess is levied on passenger vehicles of upto 22 per cent. However, the rates remain lower than the 31-35 per cent tax rates prevalent in the pre-GST regime.
“GST rates on automobiles are less than what VAT and Excise duty rates used to be. India’s tax policy on automobiles has been quite consistent for the last three decades now in the form of allowing foreign investment and incentivising domestic manufacturing by providing reasonable protection from imports,” said the ministry official.
Instead of asking for reduction in GST rates, automobile companies should cut down their costs of manufacturing by cutting down the royalty payments to their parent companies abroad, the ministry official added.
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GST was implemented in July 2017, which subsumed a host of indirect taxes, including excise duty, VAT and entertainment tax.
Dismissing the contention that high tax rates are a demand dampener, ministry sources pointed out that other countries like the UK, Japan, and in those in the European Union have high tax rates.
They also said that many new firms have invested in setting up or expanding their manufacturing facilities in India such as Jeep, Kia Motors and MG Motors.
The Indian automobile sector had been facing a sharp slowdown prior to the pandemic.
In 2019-20, automobile sales contracted by 18 per cent led by a demand slowdown as well as financing problems due to the crisis in the non-banking finance space. The Covid-19 pandemic saw sales further plunge in the first few months of the current fiscal though August saw sales picking up.
The industry has been asking for a GST rate cut to revive demand for automobile sales.
Also read: Hit by Covid-19, China’s auto sector adopts novel ways to attract customers
Actual tax is more than 100%.
For example 8.4L is the cost of Honda city. 6L is the tax( 2.2L GST+1.43L Cess+2.3L RoadTax). So tax is ~70%
Salaried class pay 30% income tax for total price of 14.4L. So another 4.3L as income tax.
So total tax is 10.3L to purchase 8.4L car.
This is a simplistic view of the problem. But sales is a factor of what people want for their usage and maybe style, what and how much they are willing to spend and how much the manufacturer is willing to package within that cost. Of course mileage is a big feel good factor in India. GST while there is not a big factor for sales rise or fall. When times are uncertain car sales will fall and people look to cheaper cars. Cheaper doesn’t mean bad cars. Some of the big brand models have been total failures too. It al boils down to how customers perceive value for money.
Toyota in India has done poor promotionand deals and their service is pathetic and expensive. Sales is bad in general as the economy has shrunk due to COVID19, and not due to GST. Toyota seems to fared worse and it is due to thier own misgivings.
Indian political class has a socialist mindset.
Because there are so many poor people and many working as self employed or underemployed.
So too much profits are bad. Businesses must exist to serve society and country!
Government conviently forgets to mention cess charged which makes total tax above 45% in many cars.
lol ..trust it on India to tell companies how to go about their business !! As it is we have one of the most unreasonable and complicated GST tax regimes in the world !!
Toyota must ask itself one question, why is it that both Maruti Suzuki and Hyundai are successful in Bharat? Why do they command such huge market share?
Lol ..that’s an easy one ..cause they have some of the lowest quality cars and hence their cheaper price tags. But you will forced to run to their service centres cause of issues all the time. And their safety features are almost non-existent. But Indians generally don’t care about all this as long as things come cheap !!
my family has had a maruti alto for over 20 years. does not work like a charm but will say that it will do better than a 20 year old mg hector
The official has a point when he mentions MG, Kia and Jeep. In fact, Renault has also increased production manifold . Just for pure political reasons, a statement from a single car maker is used. And this car company is slowly losing market share too. When was the last time anyone heard of a new launch by Toyota? Its surviving based off of Innova. Just like the Tatas stopped launching new models and suffered ultimately, Toyota is staring at the same fate in the Indian market. If the atmosphere was really so bad with regard to high taxes, three new companies wouldn’t have set up shop .
lol ..are you kidding me ..all the three Car makers you mentioned are known for making very low quality cars that break down at the first sign of trouble. Toyota is the best car company in the world that has perfected the art of making high quality cars at a very affordable price tag all over the world. And besides every country I have lived in levies a gst of 5-11% not 28% making what’s affordable in most countries ( even the developed countries) but making it unaffordable in ours cause if such high tax rates. This is not what ease of doing business means by any stretch of the imagination !!
Political reasons !
Maybe you want to harass them to contribute to your favourite political party.
Auto Industry is right in saying taxes are too much! In USA most states have a tax of around 5-7% and in Canada it is around 15%. BTW, Canada is considered a high tax country becuase of their socialist structure. If Indians are paying 28% then obviously it is way too high. No wonder we have apoor economy that is growing slowly. We still have not come out of a high tax mind set. One of the problems may be because Indians do not pay taxes and the government has to have revenue to run its affairs, so this is how government tries to get even with general population who do not want to pay taxes. If most people in India would pay taxes, may be then govet. might reduce taxes. In any case, India continues on a snail pace to improve its economy and it may take few more decades to improve but truly does anyone really cares! It is quite disappointing in Modi’s government that considers itself business friendly and wants India to be a 5 Trillion dollar economy by 2024.
Cant compare USA and India
In USA 50% of population pays income tax
In India just 2%. Most are salaried people. And many salried fall in lowest tax slab so they are also out of income tax.
Hence high indirect taxes in India. That is the truth.
I see this high GST s a good way to tax people who buy luxury products if they are not paying incone tax. However it can be unfair to those tax payers who have already paid high income taxes.
Seriously 😳😳 – what kind of English is this. What do you mean by “crib”. Have you ever had a dictionary or even a semblance of English education. Words like “crib’ & “cribbing” DO NOT EXIST as used in the Indian lingo.
Check a standard dictionary. Please 🙏🏻.
Not true. Why should GST be 28 percent for all cars.
So tax payers who work hard in life should be taxed at 30 percent income tax and also pay 28 percent to own a car?
Does the government even look at them when they retire from a job. But as long as they have a job, govt sucks their blood like a leech.
For Luxury cars, not small/mid size cars .
Every cars except EVs are taxed 28%. On top of that you pay cess and other craps.
Yes it is double taxation considering low proportion of income tax payers in our country.
I wish there was a discount in indirect taxes for income tax payers as per slab at least for large purchases. Rich agriculturists and many businessmen and self employed do buy big cars but they don’t suffer the whammy of double taxation.
Ram you absolutely said 💯 right about Indian Tax system. 👍👍👏👏
Ram you absolutely said
100 % right about Indian Tax system