Hero MotoCorp, on September 19, urged the government to consider a phase-wise reduction in GST on automobiles, cutting rates for two-wheelers in the first stage and deferring tax cut on four-wheelers to a later stage. The country's largest two-wheeler maker said the move would help the government contain potential revenue loss, and at the same time provide relief to around 20 million probable two-wheeler buyers across the country. "I understand that potential adverse impact on government revenue is becoming a constraint (for GST rate cut). While increased sales should take care of that, even if we assume a shortfall in revenue, a resolution can be found if we approach this topic in phases," Hero MotoCorp CFO Niranjan Gupta told PTI.
The government may look at reducing the GST for only two-wheelers as the first step and defer it for four-wheelers, he added. "This will contain the potential revenue loss, and also cover around 20 million buyers," Gupta said. To begin with, the government can even look at bringing two-wheelers up to 150 cc into the 18 per cent goods and services tax (GST) slab, he said, adding that this will provide relief to almost 16 million probable customers, mostly in small towns and rural areas, with minimal revenue impact. "Thereafter, the same can be extended to other segments, basis the outcome and fiscal space that the government may have," Gupta said.
The two-wheeler market in India is pegged at around 20 million units per year with lower than 150-cc bikes accounting for the bulk of sales. Gupta said that the company, for some time now, has been pointing out that two-wheelers below 150 cc are definitely not items of luxury or sin goods. "They are drivers of the economy, especially in the heart of the nation, in tier II, III cities and villages. They not only provide mobility to millions but also make them employable and support small businesses. Thus, it is unfair to club them under the same category as four-wheelers or expensive motorcycles," Gupta said. Hence, the GST council needs to have a separate slab for two-wheelers below 150 cc category at 18 per cent, he added. "This is basis end-use, and not overall segmentation," Gupta said.
When asked if the GST rate cut should come now or close to BS-VI transition, he said: "We believe that it needs to be an immediate step, as it will help in boosting the sentiment right now and increase sales, and also help insulate the BS-VI impact." The current slowdown in the industry is due to a significant price increase through multiple policies and structural changes over the past couple of years. This, along with other factors such as liquidity crunch, low economic sentiments, reduced rural incomes, has put a cumulative impact on sales, Gupta said. "Therefore, the need is for an immediate respite, at least for the economic enablers, like two-wheelers up to 150 cc segment," he added. It is prudent to act now with a booster shot (GST rate cut), rather than wait for natural cyclical recovery because the domino effect of prolonged auto industry slowdown could lead to a widespread impact on the overall economy, Gupta noted.
Facing an unprecedented slump in sales, the automobile industry has long been demanding a reduction in GST rate from the present 28 per cent to 18 per cent. The GST Council, headed by Finance Minister Nirmala Sitharaman and comprising representatives of all states and union territories, is scheduled to meet on September 20 in Goa.
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