Indian auto industry pushes for reduction in GST on lower emission two wheelers

By lowering the GST on CNG and flex fuel options, the industry hopes to incentivise their adoption and contribute to a reduction in overall vehicular
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GST on two wheelers
The current flat 28% GST on all two-wheelers in India, according to the industry, creates a significant price barrier for consumers considering cleaner options. (AP)
GST on two wheelers
The current flat 28% GST on all two-wheelers in India, according to the industry, creates a significant price barrier for consumers considering cleaner options.

India's automobile industry is urging the government to incentivise the adoption of low-carbon two-wheeler technologies by reducing the Goods and Services Tax (GST). In a letter to the Ministry of Heavy Industries, Society of Indian Automobile Manufacturers (SIAM) has proposed a tiered GST structure specifically for flex-fuel and CNG two-wheelers.

Currently, all two-wheelers in India face a uniform 28 per cent GST rate, which the industry argues discourages the uptake of cleaner alternatives. Their proposal advocates for an 18-12 per cent GST slab for these low-carbon technologies, making them more price competitive compared to traditional gasoline-powered vehicles, a report by CNBC stated.

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This push for lower GST stems from a multi-pronged strategy. Firstly, it aims to address environmental concerns. CNG, already a popular fuel choice for buses and cars, emits significantly less pollution than gasoline. Flex-fuel vehicles, designed to run on higher ethanol blends, also offer a path towards cleaner transportation. By lowering the GST on these options, the industry hopes to incentivise their adoption and contribute to a reduction in overall vehicular emissions.

Secondly, the proposal targets affordability. Two-wheelers are a critical mode of transportation in India, playing a vital role in various sectors like e-commerce and delivery services.

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However, industry sources point out that a high upfront cost, including a 28 per cent GST, a 15-year road tax, and a 5-year third-party insurance premium, hinders wider adoption compared to other Southeast Asian nations. They cite examples like Thailand and Indonesia, which boast significantly higher two-wheeler penetration rates due to lower GST rates (7 per cent and 11 per cent respectively).

What is the rationale behind this?

SIAM seeks a two-pronged approach for GST reduction. They propose an immediate reduction to 18 per cent for flex-fuel and CNG two-wheelers, with a further decrease to 12 per cent once the base GST rate for all two-wheelers is brought down to 18 per cent. Additionally, they advocate for the complete removal of the 3 per cent cess currently levied on two-wheelers exceeding 350cc.

Developing CNG and flex-fuel technology requires substantial investment, and industry executives believe a lower GST rate is crucial to make these vehicles financially attractive for consumers.

(Check out upcmoing two wheelers in India)

The Ministry of Heavy Industries is yet to respond to the proposal. While they can technically recommend changes to the Finance Ministry, the ultimate decision on GST reduction rests with the GST Council. This industry push highlights India's growing focus on promoting cleaner transportation solutions and the potential role of lower GST rates in achieving this objective.

First Published Date: 16 Jun 2024, 09:13 AM IST
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