NEW DELHI: Hit by a sudden decline in sales and enquiries, the automobile industry has urged the government to hasten the implementation of new GST rates, seeking a rollout before the start of the festive season in the second half of September.
After Prime Minister Narendra Modi announced next-generation GST reforms and GST rate cuts in his Independence Day speech, buyers have started delaying their purchase in anticipation of smaller cars and two-wheelers growing cheaper by up to 8-10%.
The Chief Executive Officer (CEO) of a leading car company said they are hopeful of a quick resolution given that the GST council is expected to meet soon.
"Sales have fallen in double-digit figures since the GST rate cut news started circulating. It is very important that this matter is taken seriously," he added.
The Goods and Services Tax (GST) Council will meet for a two-day session starting September 3. Headed by Finance Minister Nirmala Sitharaman, the council is expected to implement the new tax slab in the next couple of weeks.
'Before Diwali, please'
The Automobile dealer body Federation of Automobile Dealers Association (FADA) has written to at least three central ministries - Finance, Commerce and Heavy Industries Ministries - seeking expedited implementation of the proposed GST rationalisation reforms. In its letter, FADA stated that consumers are postponing car purchases in anticipation of GST cut during the upcoming festive season and these deferments risk turning festive sales into a "whitewash" period.
The FADA said the proposed low rates of GST on small cars should be implemented before Diwali and the pent-up demand will only materialise during the festive period after the new GST rollout. The body has also sought clarity on how accumulated cess will be utilised after the cess removal.
Venkatram Mamillapalle, Managing Director and CEO, Renault India, said on Sunday that speculations about a reduction in Goods and Services tax (GST) have impacted sales of cars as customers are postponing the purchase in anticipation of a reduction in price. He added that the time gap between the announcement and the possible rate gap has impacted auto sales.
"Everybody’s anticipation is that if GST goes down, the value of the car will also go down. So those people who can wait, they are waiting," said Mamillapalle on the sidelines of the launch of the 'New Kiger'.
Price drop awaits
Small car prices may decrease by up to 10% if the applicable tax slab is reduced from 28% to 18%.
As part of the wider reforms to boost economic growth, the Centre has proposed moving from four tax slabs to a simplified two-rate system: 5% for essential items and 18% for most other goods. Luxury and sin products are likely to face a steeper levy of around 40%.
At present, vehicles are taxed under multiple slabs combining GST and cess. Small cars are taxed at 28%, whereas large cars (above 4 meters in length and 1200cc in engine size) are taxed (including cess) in the range of 43-50%.
As per reports, the government is weighing a flat 18% levy on smaller cars and two-wheelers whose engine size is below 350cc. Luxury cars and sports utility vehicles are expected to fall under the higher 40% bracket.
Industry experts believe that the rate cut will provide a major boost to the small car segment, as prices in this category have increased by 50% to 80% over the past six years, making them unaffordable for many buyers.