Two-wheelers ‘merit a GST rate revision’: Finance Minister N Sitharaman

by Mayank Dhingra 26 Aug 2020


Finance and Corporate Affairs Minister Nirmala Sitharaman, in her address at the CII virtual forum on August 25, has assured the industry that the GST Council will take up the matter of bringing in a tax reduction on two-wheelers, which is the cheapest modes of motorised personal mobility in the country.

The statement comes in the wake of the prolonged slowdown in the demand for two-wheelers, which have been impacted by a price hike to the tune of 15-18 percent owing to IRDA’s mandatory five-year third-party insurance norm, safety regulations as well as the recent implementation of BS VI emission norms from April 2020.

According to Sitharaman, “It is a good suggestion (GST reduction) as this category is neither a luxury nor a sin good and hence merits a rate revision. Consequently, this will be taken up with the GST Council.”

Under the GST regime, two-wheelers are currently being taxed at 28 percent, which is the highest tax slab within GST, whereas the industry has been long advocating a 10 percent reduction to 18 percent across all vehicle segments as well as vehicle components.

Two-wheelers sales decline sharply in FY2020
A quick look at the sales performance of two-wheelers in India over the recent past is enough to conclude that the segment has been badly hit and needs a growth injection (like the commercial vehicle segment). Two-wheeler sales in India in FY2020 were down 18 percent with the overall tally culminating at 17,417,616 units (FY2019: 21,179,847). Within this segment, both scooters as well as motorcycles reported a 17 percent decline, with sales of 5,566,036 units (FY2019: 6,701,430) and 11,214,640 units (FY2019: 13,598,190), respectively.

In the April-July 2020 period of FY2021, sales of two-wheelers continue to remain impacted albeit the rate of decline is slowing month on month.The significant price increase on account of BS VI-driven introduction of fuel-injection technology even in mass-market products, as well as the larger impact of the Covid-19 pandemic on the automotive sector and the economy as a whole seem to have had an impact.

Two-wheeler sales reported a substantial 60 percent de-growth during this period, only managing sales of 2,574,467 units (April-July 2019: 6,524,784). While scooters at 673,295 units (2,040,706) have reported a 67 percent decline, a good monsoon and better rural demand saw motorcycles do slightly better by registering a 58 percent de-growth with total sales of 1,788,868 units (4,264,889) during the last four months.

With the Covid-19 pandemic creating a shift towards personal mobility solutions as well as the financial prudence of the buyer also shifting demand downward into the spectrum, two-wheelers are clearly the low-hanging fruit of mobility in India and any move to enhance their affordability could act as a catalyst to spur demand and drive the revival of the segment and indirectly the industry.

SIAM urges similar GST reduction in CVs and PVs
Commenting on the Finance Minister’s statement, SIAM president Rajan Wadhera said: “The automobile industry has been closely engaging with the government of India on suggestions to boost demand. One major recommendation in this regard was the reduction in GST rates for the entire automobile sector to 18 percent.

In this regard, the recent  statement by the Finance Minister on the merit in reducing GST rates for two-wheelers is very welcome. GST reduction would be a key enabler in generating demand in the auto sector, and we are very hopeful that similar consideration could also be given for reduction of GST rates for commercial vehicles and passenger vehicles.”  

According to Nikunj Sanghi, president, Automotive Skill Development Council and managing director, JS4Wheel Motor, “Finally a positive move. I am happy that the government has started thinking in terms of at least one segment of the automotive industry not being sin and considering it a need. Any cut in the GST on two-wheelers will be positive for the industry.”

The Finance Minister, however, also clarified that this suggestion will first go to the fitment committee and then be discussed in the GST Council.

“The only caution that I would want to put in is that the decision should be taken and conveyed as early as possible because otherwise the current retails would get impacted as people in anticipation of a rate cut might postpone their purchases, and our experience shows that some of the people who postpone their decisions never come back. So, the processing needs to be very quick otherwise it will damage the existing retails,” added Sanghi.

If approved, the GST reduction on two-wheelers will make them more affordable and perhaps bring them back to BS IV levels in terms of pricing. “With BS VI available for the past three months, it will be a delight factor for the customer and prompt him to come back to the showroom,” signed off Sanghi.