The President of the Federation of Automobile Dealers Associations (FADA), Manish Raj Singhania, has called for a reduction in the Goods and Services Tax (GST) on automobiles to 18 percent. He asserts that the high GST rate, currently at 28 percent, significantly hampers the sales of entry-level cars and two-wheelers, particularly affecting customers in rural and smaller urban areas. Singhania emphasized that for many in these regions, personal vehicles are essential due to limited public transportation options.
“Entry-level cars and two-wheelers are not just a luxury but a necessity for people in rural areas,” Singhania stated. “If vehicle prices continue to rise due to high taxation, how can rural customers afford them? We must make these vehicles affordable to ensure they are included in our growth story.”
The Decline in Mini Car Sales
The impact of high GST rates is evident in the sales figures of entry-level cars. According to the Society of Indian Automobile Manufacturers (SIAM), domestic sales of these vehicles have plummeted by around 40 percent year-on-year, dropping to 152,262 units in the last financial year from 252,409 units the previous year. This significant decline highlights the need for urgent tax reforms.
Currently, only Maruti Suzuki and Renault India manufacture small cars in the country, with models like the Alto, S-Presso, and Kwid. In April, Maruti Suzuki reported a year-on-year decline of 18 percent in the sales of its mini cars, selling just 11,519 units.
Industry Voices Support for Tax Reduction
Rajiv Bajaj, Managing Director of Bajaj Auto, echoed Singhania’s sentiments, advocating for lower GST rates on commuter motorcycles. He pointed out that high taxation, coupled with stringent regulations, has driven up prices, making these vehicles less accessible to the average consumer.
RC Bhargava, a key figure at Maruti Suzuki, also suggested that incorporating hybrid technology into small cars could improve fuel efficiency at a lower cost. However, he stressed that such advancements depend on the reduction of GST rates and the ability of engineers to develop affordable and robust technology.
Enhancing Customer Experience
To further understand and enhance customer satisfaction in the passenger vehicle category, FADA is collaborating with Frost & Sullivan on a comprehensive customer experience index study. This study will focus on various aspects of the customer journey, including sales, after-sales service, and product quality. The results are expected to be released in September, offering valuable insights to drive improvements in the industry.
Conclusion
The call for lowering the GST rate on automobiles to 18 percent is gaining momentum, with industry leaders highlighting its critical role in boosting sales and making vehicles more accessible to rural and urban customers alike. As the debate continues, stakeholders remain hopeful that tax reforms will pave the way for a more inclusive growth trajectory in the automotive sector.
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