ICICI Direct: GST Rate Cut Proposed For Two-Wheeler Segment

ICICI Direct Report

Media reports say that the government is considering reducing Goods and Services Tax rate on Two-Wheeler, recognising that vehicles are neither ‘luxury’ nor ‘sin’ goods and, hence, should not attract a high GST rate.

It is said that the GST Fitment Committee has been asked for its recommendations in this regard, with the decision to then be ratified by GST Council.

The Two-Wheelers currently (along with rest of the auto industry) are taxed at 28%.

It has been a long standing demand of the industry to at least temporarily reduce the rate to 18% to counteract a rise in vehicle acquisition costs over the previous 18 months via introduction of various safety features (including anti-lock braking system /combined braking system), implementation of BS-VI norms and increase in registration fees and road tax by some states.

It is contended that a reduction in upfront price to be paid by consumers would boost sentiments and spur demand.

During the present post-Covid-19 environment of reduced incomes and consequent propensity to spend, any reduction in upfront acquisition costs could provide further fillip to ongoing steady improvement in demand (auto industry retail volumes back to approximately 70% of pre-Covid levels in recent days).

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