Auto Sector Might Have to Wait Longer for a GST Rate Cut

The automobile industry has been experiencing a significant decline in the last 19 years. In addition to the auto sector, various other industries have proposed GST rate cuts to revive the Indian economy, which has declined to a six-year low. However, the Fitment panel is not in favour of reducing GST on automobiles, biscuits or consumer durables, and other consumption-based industries.

The panel blames the present liquidity crisis as well as the problems around non-bank lenders for the slowdown in the auto sector.  The Fitment Committee rules out any further reduction on the current GST rate considering the high revenue implications it might lead to in the future.

The panel also mentioned several other factors due to which the demand for automobiles had declined. The panel cited reasons such as liquidity crunch, Non-Banking Financial Company (NBFC) crisis, scrapping of check-posts post-GST implementation, structural modifications like BS-IV to BS-VI, and more.

The GST Council has received a report consisting of 286-page recommendations from the panel. The panel has also decided not to mend current GST structure for bakery products, biscuits, fruits, vegetables, mineral water, breakfast cereals, ready-to-eat packaged food items, and various other food products.

Also Read: Great Expectations for the 37th GST Council Meet

The panel believes that since manufacturing of biscuits happens in bakeries, organised sectors, etc. having two separate slabs for biscuits based on the selling price will lead to tax evasion. Besides, a GST rate cut for one sector could probably lead to similar demands from other sectors too.

The fitment committee mentioned that there could be a potential revenue loss of about Rs 50,000 crore on a yearly basis in case the GST rate is reduced from 28% to 18%.

Also, the panel has suggested increasing tax rates to 12% from 5% after the railway coach manufacturers demanded it after not being able to set off ITC and facing cash-flow issues.

Select states including Bihar, Kerala, Punjab, and West Bengal also have claimed that GST is not the sole reason for the slump in the auto industry. These states are scared about the revenue losses which might occur in case GST rates are reduced. Hence these states have ruled out a GST rate cut amidst grim revenue crisis situation.

The auto industry is holding all its hopes on the upcoming GST Council meeting looking ahead for a GST rate cut from 28% to 18%. However, it seems like the wait for a GST reduction might take more than the anticipated time considering the various facts, which have impacted the slowness in automobile sales.

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