According to Bain & Company, the government should levy a 5% flat tax on all electric vehicle components.
While the Covid-19 outbreak had a detrimental impact on several Indian economic sectors, the slowdown in the Indian automotive sector predates it.
It began in 2018-19 when the overall economy began to slow (analysts FE talked to earlier said it was, in part, due to the aftereffects of the note ban, implementation of GST, and the banking crisis).
Since then, the car industry has been anticipating a more rationalized tax system, as well as additional direct and indirect support measures, in every Union Budget.
It has received some assistance over the years.
Deepak Jain and Sushil Pasricha, both partners at Bain & Company, told FE earlier this year that the manufacturing sector’s expectations (of which automotive is a large part) are multi-layered, including:
Rationalization and simplification of taxation: Reducing GST in specific sectors and reducing the number of GST slabs would not only promote tax compliance but also provide the needed relief, boosting consumer sentiment and keeping demand high.
Low-cost, long-term loans to ease debt burden: The government should provide low-cost, long-term loans to the MSME sector (which employs 40% of the country’s workforce, contributes 30% of GDP, and is also a major supplier to the automotive sector) to infuse working capital and ease the effects of the pandemic;
Higher investment in skilling the workforce: There needs to be a higher investment in skilling the workforce, as automation is replacing older jobs and is creating newer ones. The workforce should be upskilled for the next phase of industrialization, i.e., Industry 4.0, or the Fourth Industrial Revolution;
Make factories energy-efficient: The manufacturing sector is considered one of the significant contributors to environmental pollution; the government should take a two-pronged approach to reduce carbon footprints of factories—one by incentivizing the usage of renewable energy such as solar, and two by setting stricter norms of energy efficiency for factories. some support.
Electric vehicles have a long-term vision: They are the next big thing in the automotive industry, and they will be crucial in fulfilling sustainability goals. The adoption of electric vehicles is influenced by two factors: cost and infrastructure. “As a result, the government should impose a flat GST rate of 5% to all EV components while also implementing more incentives and policies to cut manufacturing costs, thereby lowering the overall price of EVs,” Jain and Pasricha said.
Rates of Remission of Duties and Taxes on Export Products (RoDTEP) have been revised upward: The government should think about enhancing the RoDTEP rates, which went into effect in January 2021 as a replacement for the Merchandise Exports from India Scheme (MEIS). The notified rates of 1% or less are insufficient to cover the incidence of non-refunded taxes and duties on export items.
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