Make tax structure simpler for Indian auto industry to prosper

Fierce competition, lengthy investment cycle, compliance with the ever growing emission norms, problems posed by regulations and infrastructure, varying market approaches, considerable outsourced procedures, etc. are some of the hallmarks that determine the Indian auto industry. Yes it is a complex one with a complex tax structure. Adding to the woes is the high tax burden. 

The Indian auto industry is highly taxed – levies account for up to 77 percent on cost – and thus is a great source of tax revenue for the government. Different kinds of indirect taxes at various levels in the country’s three-tier tax structure are applied, ie Centre such as central excise duty, customs duty; state levies such as motor vehicle tax, CST, VAT, etc and local levies such as entry tax, road tax, etc. In the year 2016, the government came up with infrastructure cess at 0-4 percent and 1 percent tax collected at source on certain vehicles. 

Intermittent interfering with indirect taxes has the potential of affecting consumer preferences. It is high time the government made the tax structure simpler. The country is on the verge of adopting GST, and thus we are in need of a tax system which will remain static for the next five years or so. 

Thus, the auto industry wants a simpler tax regime by incorporating all indirect taxes into GST. The industry expects that the budget will have a clause in this regard so that the auto sector can enjoy a more simplified tax system. Such a scenario will enable the Indian auto companies to plan their investments better. This will in turn help the economy as a whole and promote buoyancy in revenue.

There should be enough provisions in the budget to reduce tax rates for importing environment-friendly hybrid vehicles. As of now, high level of customs duty is charged on the import of such vehicles. Also, there should be drastic customs duty exemptions on all parts used in the manufacturing of such hybrid vehicles.

India has long been rattled by the pollution caused by the use of old vehicles on the roads. It will be interest of the industry as well as the environment if there will be enough budgetary provisions for replacing older vehicles (in the age bracket of 10 to 15 years) with new ones. 

Different types of cesses exist in the auto sector, such as automobile cess and infrastructure cess. It is often difficult to compute the duties because of the fact that each cess uses a different computation practise and base value. It will be interest of the industry if the government will integrate all these various cesses under the central excise duty which is being currently levied.
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Gopal Agrawal is the partner at Singhi Advisors