No GST cut, Govt asks auto companies to reduce hefty royalty payments

Government is in no mood to give tax concessions to the automobile sector to boost the sagging demand. Sources in the finance ministry squarely rejected the view that the automobile sector in the country is struggling due to the high rates of GST.

New Delhi: In a clear indication of the thinking within Prime Minister Narendra Modi’s government, senior officials in the finance ministry are in no mood to give tax concessions to the automobile sector to boost the sagging demand. Sources in the finance ministry squarely rejected the view that the automobile sector in the country is struggling due to the high rates of GST.

“GST rates on automobiles are less than what VAT and Excise duty rates used to be in pre-GST times,” said a source in the ministry of finance.

He said the country’s tax policy on automobiles has been quite consistent for the last three decades now which allowed foreign investment and incentivized the domestic manufacturing by providing reasonable protection from imports.

Sources in the ministry also point out to the fact that the automobile industry was thriving in the pre-GST era despite the effective tax rate being higher than the present GST rates, a fact, according to officials, which is also evident from the hefty royalty payments made by these automakers to their parent companies abroad.

India’s auto sector is dominated by foreign players, particularly the cars produced by Japanese automobile giants such as Suzuki, Toyota, Honda and Korean manufacturer Hyundai dominated the country’s roads for decades.

In addition to Japanese and South Korean automobile giants, European car makers like Mercedes Benz, Volkswagen, BMW have long thrived in the country, but due to a combination of factors and a slowing economy the industry has been struggling for quite some time which led to demands for a cut in GST rates to revive the demand.

While praising the auto industry for investing in the country and creating the employment, officials rejected the view that the problem was due to high GST rates.

“Industry has on its part delivered. It has contributed by way of large investments and employment. All of a sudden, dissent in some quarters on tax rates on automobiles is surprising,” a source in the finance ministry told ETV Bharat.

“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,” he said.

Govt objects to hefty royalty payments by automakers

Early this month, Commerce and Industry Minister Piyush Goyal asked auto companies to reduce the hefty royalty payments to their parent companies located abroad.

Addressing a meeting of Society of Indian Automobile Manufacturers’ Association (SIAM), Piyush Goyal said the auto companies that enjoy huge market share pay millions of dollars per year as royalty to their parent companies.

Indian subsidiaries of auto giants like Suzuki, Toyota, Honda, Volkswagen and others pay huge royalty to their parent companies for transfer of technology, use of brand and other things.

Goyal said reduction in royalty payments can help these companies reduce the cash outflow, bring down the vehicle prices and help in reviving the demand.

(Article by Krishnanand Tripathi)