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Hero MotoCorp requests government for reduction of GST in a phased manner

India's largest two-wheeler manufacturer said that by doing this, not only will the government provide relief to 20 million two-wheeler buyers but is also going to cut down on the revenue loss that it will incur by cutting down on the tax rates.

By: | Published: September 19, 2019 11:40 AM

A Hero MotoCorp spokesperson said capex would be a bit lower than the earlier guidance for FY20

Hero MotoCorp has requested the government for a phased reduction of GST rates for the auto sector by reducing the rates for two-wheelers at the first stage and postpone the tax cut on four-wheelers. India's largest two-wheeler manufacturer said that by doing this, not only will the government provide relief to 20 million two-wheeler buyers but is also going to cut down on the revenue loss that it will incur by cutting down on the tax rates.

Hero MotoCorp CFO Niranjan Gupta told PTI "I understand that potential adverse impact on government revenue is becoming a constraint (for GST rate cut). While increased sales should take care of that, even if we assume a shortfall in revenue, a resolution can be found if we approach this topic in phases," He went on to say that initially, the government can look at bringing two-wheelers up to 150 cc under the 18 per cent GST slab which is going to bring relief to 16 million probable customers mainly from small and rural areas.

"Thereafter, the same can be extended to other segments, basis the outcome and fiscal space that the government may have," Gupta said. The two-wheeler market in India is pegged at around 20 million units per year with lower than 150-cc bikes accounting for the bulk of sales. Gupta said that the company, for some time now, has been pointing out that two-wheelers below 150 cc are definitely not items of luxury or sin goods. "They are drivers of the economy, especially in the heart of the nation, in tier II, III cities and villages. They not only provide mobility to millions but also make them employable and support small businesses. Thus, it is unfair to club them under the same category as four-wheelers or expensive motorcycles," Gupta said.

Hence, the GST council needs to have a separate slab for two-wheelers below 150 cc category at 18 per cent, he added. "This is basis end-use, and not overall segmentation," Gupta said. When asked if the GST rate cut should come now or close to BS-VI transition, he said: "We believe that it needs to be an immediate step, as it will help in boosting the sentiment right now and increase sales, and also help insulate the BS-VI impact." The current slowdown in the industry is due to a significant price increase through multiple policies and structural changes over the past couple of years. This, along with other factors such as liquidity crunch, low economic sentiments, reduced rural incomes, has put a cumulative impact on sales, Gupta said.

"Therefore, the need is for an immediate respite, at least for the economic enablers, like two-wheelers up to 150 cc segment," he added. It is prudent to act now with a booster shot (GST rate cut), rather than wait for natural cyclical recovery because the domino effect of prolonged auto industry slowdown could lead to a widespread impact on the overall economy, Gupta noted. Facing an unprecedented slump in sales, the automobile industry has long been demanding a reduction in GST rate from the present 28 per cent to 18 per cent. The GST Council, headed by Finance Minister Nirmala Sitharaman and comprising representatives of all states and union territories, is scheduled to meet on September 20 in Goa.

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