Union Budget 2022: Reduce GST Rates On Two-wheelers, Used Cars To Boost Auto Sector Demand – FADA

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Union Budget 2022: Reduce GST Rates On Two-wheelers, Used Cars To Boost Auto Sector Demand – FADA
© Provided by The Financial Express

The apex body of automobile dealers, Federation of Automobile Dealers Association (FADA) has requested Union Finance Minister Nirmala Seetharaman to reduce GST rates on two-wheelers and used cars to boost the auto sector demand. FADA also appealed to introduce benefits of claiming depreciation on vehicles for individuals paying income tax and also reduce corporate Tax for LLP, proprietary & partnership firms. 

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The association has bifurcated the recommendation into two different aspects – demand revival appeal and dealer issue. 

FADA asks the government to accommodate these issues in the upcoming budget, which could re-energize the auto retail trade, bringing the sector and the entire automobile industry back on track, along with the overall economic growth.

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Introduce benefits of claiming depreciation on vehicles for Individuals paying Income Tax

FADA requests the Finance Ministry to allow individuals to account for depreciation. This will not only help in increasing the number of individuals filing their IT returns, but will also help in igniting the automobile demand (especially two-wheeler) from individuals, and will thus up the GST collection for the government. 

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The vehicles depreciate for both corporate as well as individuals, and it would be judicial that the salaried class should also get the same benefit.

Depreciation rate for vehicles

FADA requests for the reintroduction of the depreciation scheme which was valid only till 31st March’20 to be further extended for FY 2022-23. 

Regulation of GST rates to boost volumes in two-wheeler sales.

To bring the industry and auto retail trade back on the path of growth,  FADA requests the Ministry to regulate and reduce GST rates on two-wheelers to 18%. It is noteworthy that the two-wheeler is used not as a luxury but as a necessity to travel distances by lower class and rural segments for their daily working needs. Hence the rationale of 28% GST + 2% cess which is for luxury/skin products does not hold good for the two-wheeler category.

At a time when vehicle prices are increasing every 3-4 months due to continuous price hikes in metals and various other factors, a reduction in GST rate will counter the price hike and help spur demand.

The association believes that the growth in demand and the ripple effects it will have on many dependent sectors will increase the tax collections and in the mid to long term will be revenue positive along with getting positivity in the overall consumer sentiment and thereby the overall economy.

Reduction in GST rates for Used Cars To 5%

The rate of GST on used cars is currently 12% for vehicles that are under 4000 mm and 18% for vehicles above 4,000 mm.

As the used car business occupies 1.4 times the size of the new car market, accounting for 5-5.5 million cars per annum with a turnover of over ₹1.75 trillion. Authorized dealers account for only 10-15% of this trade, which is also the organised sector thus paying taxes.

In case the used car is purchased from the end consumer by the dealer, no ITC will be there to be claimed by the dealer since, neither the tax has been paid under forwarding charge nor RCM. In such a situation there will be cascading to the extent of value added by the dealer. The Association, therefore, requests for a uniform GST rate of 5 % on the margin for all used vehicles, to create a win-win situation for the government, dealers, and vehicle owners.

 With the reduction in GST, it will help the industry shift from unorganised segment to organised segment thus bringing in more business under the ambit of GST helping in putting a brake on tax leakages.

Reduction of Corporate Tax for LLP, Proprietary & Partnership Firms

The government has reduced corporate tax to 25% for private limited companies with a turnover of up to ₹400 crores. The same benefit should also be extended to all LLP, Proprietary and Partnership firms as most traders within the auto dealership community fall in this category. 

This will help boost the morale and sentiment of the traders which employ 5 Mn people, out of which 2.5 million employees are in direct employment. The auto trading community in its truest sense is the employment-generating mechanism for the country as it does not displace employees and gives them employment in their home locations!

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