The automobile industry plays a crucial role in driving economic growth and employment generation in many countries, including India. In recent times, the automobile dealers’ association in India has been advocating for a reduction in the Goods and Services Tax (GST) on two-wheelers. Currently set at 28%, the association argues that lowering the GST rate to 18% would stimulate demand, boost sales, and provide a much-needed impetus to the struggling sector. In this article, we delve into the reasons behind this plea and explore the potential implications of such a tax cut.
- Reviving Demand in the Two-Wheeler Segment:
The two-wheeler segment has faced a challenging period in recent years, compounded further by the economic impact of the COVID-19 pandemic. High GST rates on two-wheelers have made them relatively more expensive for consumers, leading to a decline in demand. By reducing the GST rate from 28% to 18%, the automobile dealers’ association believes that the affordability of two-wheelers would improve, thereby spurring demand and revitalizing the sector. Increased sales would not only benefit the dealers but also the entire value chain, including manufacturers, suppliers, and service providers.
- Encouraging Personal Mobility and Last-Mile Connectivity:
Two-wheelers are an essential mode of personal transportation in India, particularly for the middle-class population and those residing in rural areas. Lowering the GST rate on two-wheelers would promote personal mobility and enhance last-mile connectivity, addressing the transportation needs of individuals across the country. As India continues to focus on sustainable and inclusive development, facilitating affordable and efficient transportation options is crucial. A reduced GST rate on two-wheelers would contribute to this objective and align with the government’s vision of promoting electric vehicles and reducing carbon emissions.
- Boosting Manufacturing and Job Creation:
The automobile industry is a significant contributor to India’s manufacturing sector and job creation. A lower GST rate on two-wheelers would help stimulate demand, leading to increased production volumes for manufacturers. This, in turn, would have a positive cascading effect on the ancillary industries associated with the two-wheeler segment, creating more employment opportunities. A vibrant automobile sector would contribute to economic growth, foreign investment, and technological advancements, positioning India as a global hub for manufacturing and innovation.
- Balancing Revenue Loss and Long-Term Benefits:
While the reduction in GST rates on two-wheelers would result in a temporary loss of tax revenue for the government, it is crucial to consider the long-term benefits and potential multiplier effects. The increased demand and subsequent economic activity generated by a lower GST rate can compensate for the initial revenue loss. Additionally, higher sales volumes would lead to an expansion of the taxpayer base, ultimately contributing to tax revenues in the long run.
The automobile dealers’ association’s call for a GST reduction on two-wheelers from 28% to 18% reflects the industry’s aspirations to reignite growth and alleviate the challenges faced in recent years. Lowering the tax burden on two-wheelers would make them more affordable, stimulate demand, and boost sales, benefiting not only the dealers but also manufacturers and associated industries. As the government evaluates this proposal, a careful consideration of the potential economic, social, and environmental impact is warranted. Striking a balance between revenue considerations and industry revival would be crucial in charting a path forward that propels the two-wheeler segment and contributes to India’s overall economic development.