The automotive industry accounts for about 7% of India’s GDP and is one of the largest employers. However, the industry is facing testing times due to factors such as recent policy changes relating to diesel automotive and effect of demonetisation. Considering the inherent potential of the industry and the challenges faced, it looks forward for support from the government.
In keeping with Make-in-India, it is important that the rate of depreciation on capital goods be increased to 25% from the existing 15%, so as to enable replacement of obsolete equipment and allow state-of-the-art equipment be used for making India both manufacturing as well as export hub. In addition, R&D being an integral part of auto industry and the key factor for enabling manufacturing and innovation, weighted deduction on R&D expenses should be extended to expenses incurred towards third-party R&D service providers to encourage local designing of products. The cost of land/building for setting up R&D facilities should also be included in existing R&D deduction and the expenses, such as development expense of prototype and road constructed for test track, etc, must eligible for weighted deduction. The allowance for weighted deduction should be prescribed under the minimum alternative tax regime as well.
To boost demand and keeping environment concerns in perspective, the industry would want the government to provide a scheme that could be in the form of excise incentive or cash support to owners to give up their old vehicles (aged 10 years or 15 years or more).
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From an indirect tax perspective, one of the key asks is to outline a clear roadmap for implementing GST, as any kind of uncertainty will have a negative impact on the industry since neither the industry nor the consumers will be able to take any major decision, including launch of new models, pricing structure, etc. Hence, the government has to clearly announce a date for roll-out of GST and go full steam towards implementing the same.
Excise rate structure has, over the past few years, become complex, with rates ranging from 12.5% to 30%. The government must revisit its position vis-a-vis excise duty rates for auto industry, and reduce the rates to the same levels as existing prior to January 1, 2015, in order to rescue the sector from a situation of de-growth.
The government had announced the Faster Adoption and Manufacturing of Hybrid and Electric vehicles in India (FAME India) Scheme, which aims to encourage faster adoption, domestic technology development and manufacturing of full range of cleaner electric vehicle technologies, thereby leading to creation of a strong, globally competitive, viable and self-sustaining electric vehicle industry and its ecosystem in India. Given that the industry is putting significant focus on developing world-class electric and hybrid vehicles suited to India, the government must extend this scheme for a further two years. Given the importance of the auto industry to the economy and in particular employment, it is hoped the government hears the above asks and acts.
The author, Gaurav Karnik is tax partner, EY India. Views are personal