Finance Ministry refutes high taxes wrecking auto sector

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Toyota expansion halt: Finance Ministry refutes high taxes wrecking auto sector

Most established auto industry players are used to the regulatory and taxation environment in India and have flourished in this regime, say finance ministry officials on the issue of high taxation in auto sector causing a demand slump and difficulty in scaling up for auto players. The officials were commenting on Toyota Motor Corp’s decision to not expand further in India due to the country’s high tax regime.

The finance ministry sources said that the fact these auto companies have made huge payouts in the form of royalty  to their parent companies located abroad is evidence enough that they have flourished in the same tax regime. They also cited examples of how the government has  handed out tax concessions on occasions like concessions extended to electric vehicles and to hybrid vehicles.  

A Finance Ministry source on the condition of anonymity said: “GST rates on automobiles are less than what VAT and Excise duty rates used to be in pre-GST times. India’s tax policy on automobile has been quite consistent for the last three decades now in the form of allowing foreign investment and incentivising the domestic manufacturing by providing reasonable protection from imports. Industry has on its part delivered. It has contributed by way of large investments and employment. All of a sudden, dissent in some quarter on tax rates on automobile is surprising. In fact these companies should cut down their costs of manufacturing by cutting down the royalty payments to their parent companies abroad instead of asking the government to reduce GST. ”

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A top government source also refused to accept that India levies highest taxes on the automobiles. “The GST on automobiles is in the highest bracket across the globe without much exception. In fact, world over, automobiles are subject to taxation on the higher side.”

He explains that Japan currently has three types of taxes on automobiles – once on purchase, then an annual automobile tax based on engine size and finally a weight tax at inspections required once every two years. Over and above this, there is GST at the highest of the applicable rates, he says.  

He also cites the example of EU, where the base rate for VAT/GST on automobiles ranges from 20% to 25% with plotters of other taxes varying with jurisdiction. “UK charges vehicle excise duties which varies with car emission norms and has 14 rate slabs varying from GBP 0 a year to GBP 2,175 a year with surcharge of GBP 325 in the first year and GBP 150 for expensive vehicles. Besides, there are road usage charges. Further, high parking charges are common across the globe. Most of the countries provide certain concessions to electric vehicles. Given this, it would be unfair to claim that the GST rates in India are astounding or a demand dampener,” he says.

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Another finance ministry official said that with the introduction of GST, multitude of taxes in the form of excise duty, special excise duties, cesses, VAT, CST etc., gave way to uniform GST. Vehicles, based on their high pre-GST incidence were placed in 28% slab. Passenger vehicles also attract compensation cess ranging from 1% to 22%. However, with compensation cess the taxes have not gone beyond pre-GST incidences except may be in few that were enjoying certain duty concessions.

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