FM must take front seat to drive auto sector’s growth agenda

Feb 23 2013, 03:51 IST
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SummaryThe Union Budget 2013 will be presented at the time when the Indian automotive sector faces an uphill task in recovering its growth momentum.

purpose. The finance minister may drive his agenda on eco-friendly vehicles by granting investment-linked incentives. Steps for implementation of stringent emission norms and incentives on purchase of new vehicles complying with emission norms, support in form of reduced taxes on CNG/ LPG/ hybrid and other alternative-fuel vehicles would also entice people to buy eco-friendly vehicles. Further, thrust on allied sectors such as infrastructure and tourism would also supplement the development of the auto sector.

On the indirect tax front, measures such as 100% Cenvat credit on capital goods in the year of purchase, reduction in excise duty rates, refund of unutilised credit, specifically of SACD, on import of components for manufacturers on similar lines as traders and removal of unwarranted restrictions on input credit availability on closely-linked services would enhance the spirit of the manufactures. Elimination of customs duty on aluminum and alloy steel items would help the sector to combat cheap imports effectively. Interest on differential excise duty on subsequent price increase should be removed.

On the direct taxes front, measures such as higher tax depreciation rates for this capital-intensive sector, clarification on availability of weighted deduction on construction of test tracks, reduction of MAT rate would bring cheer to the auto segment. Higher depreciation rates would support the domestic capital goods industry as well. The introduction of domestic transfer-pricing provisions has taken forward India’s image as one of the toughest transfer pricing regimes. While the introduction of advance-pricing agreements was one of the key positives last year, long-awaited safe harbour rules may be introduced this year. Advance ruling facilities should be extended to resident taxpayers to bring desired certainty.

Though little, but the recent rate cut by the RBI has sent some positive vibes in market. A deduction under income tax for interest on vehicle loans would not only spur sales but would also increase the government’s revenue by way of taxes due to increased sales. The basic tax exemption limit may be aligned to Rs 3 lakh for individuals to enhance disposable income in lower- and middle-income brackets, which could stimulate demand in the sector.

With India’s global image already facing a dent for unstable tax environment over last few years, it is expected that issues that have been settled are not unsettled through retroactive changes. Definitive steps should also be taken for the introduction of DTC, GST, finalisation of tax accounting standards and the new Companies Bill, after considering

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