Higher taxes on automotive sector have a negative impact and the government needs to look at the solution, Revenue Secretary Tarun Bajaj said on Wednesday.

"I quite agree with automotive sector. Two-wheelers and four-wheelers were not only charged 28 per cent Goods and Services Tax (GST) but we also charged cess, which is much more and as I see it will continue for two more years," he said while addressing the annual session of Confederation of Indian Industry (CII).

"So all that has a negative impact on the industry. I acknowledge that, but I do not know how to solve that issue."

However, said Bajaj, transparency has been brought into the indirect tax system and the revenue neutral rate has come down significantly from 15.3 per cent to 11.6 per cent.

Responding to the fact that India's tax-GDP ratio has remained constant, he said the government is focused on widening the tax base for which it is not increasing taxes for existing categories of taxpayers to raise revenue.

"The government is looking at unconventional measures such as matching GST returns with income tax returns to bring the informal and the non-salaried class in the tax net," he said.

On the Taxation Laws (Amendment) Bill 2021, Bajaj said it is government policy to give a stable and predictable tax regime to facilitate corporate planning.

Bajaj said the Coivd-19 pandemic has resulted in formalisation of Indian economy. This is evident from impressive rise in tax revenue from the sector which has helped the government to desist from making calls to tax-payers for payment of advance tax.

The corporate sector posted an excellent performance despite the pandemic which was beyond expectations, he said.

Auto Companies have been for years lobbying for lowering GST Rates, which they say could help boost sales. Company executives are saying that higher GST rates are making vehicles unaffordable for buyers especially as prices of raw materials are increasing, successive fuel price hike, new insurance norms mandating third party insurance cover to be paid upfront for three years for passenger vehicles and five years for two-wheelers and tougher safety and emission rules have already led to increase in prices.

Currently, GST rates on automobiles, including cars, motorbikes and trucks is at 28 percent. On top of that, cess is levied in between 1 to 22 percent if the vehicle exceeds certain body/engine size. The next level of taxation comes at the state level as they charge a road tax. GST on electric vehicle is at 5 percent while that on ambulances are at 18 percent which has been cut to 12 percent till September 30.

Even Two wheelers, which is considered to be the basic mode of transportation of the country is also being taxed at 28 % GST, the highest and at a level equal to that of luxury product.

In 2019, Finance Minister Nirmala Sitharaman herself had publicly announced that the tax cut proposal would be considered at the GST Council meeting. A year later, Prakash Javadekar, Heavy Industries Minister, hinted that GST rate cut proposal were being worked out. But the government is yet to deliver on their promise.

And again, this year, Tarun Bajaj, Revenue Secretary at the Society of Indian Automobile Manufacturers (SIAM) 61st Annual Convention said that “Government would be very happy to engage and see what can be done on GST rates, what is the tinkering that can be done to see that certain segments get the encouragement they deserve. However better understanding would be needed from automakers as to whether it was only due to high tax rates or whether there were other reasons as well in decline of automobile sales”

Given the increasing pressure, the GST Council might consider a rate revision but the following factors will be taken into account like the impact on revenue, rise in sale of vehicles post Covid especially SUV segment which might set an example of GST rate not being an issue and no inventory build-up on account of transition from BS-4 to BS-6 emission norms and global shortage of Semi-Conductor chips.

Even if the idea of rate revision is taken through by the government, it is likely to apply only to certain categories, like commercial vehicles or two wheelers which is considered as the basic mode of transportation and which is being used by mass category like rural India and the lower middle class.

Besides that, for a revenue strapped government which is already trying hard to deal with low revenue due to Covid pandemic and which is trying to kick start the economy by infusing stimulus packages by pumping in cash into the system, an across category GST Cut on automobiles sounds impossible.