Auto Sector Budget Preview

Reduction in Goods, Service Tax (GST) Rates: Topping the expectation list is the reduction in GST rates from 28% to 18% on vehicles. Apart from reducing the GST on vehicles, the auto inc is also requesting the government to reduce GST on auto parts from 28% to 18%.

Scrappage Policy: One of the key demands of auto inc is the implementation of scrappage policy as it will spur demand without putting any additional burden on the government exchequer. It will also help remove old vehicles which are causing major pollution problems. SIAM has urged the Finance Ministry to consider announcing an incentive-based scrappage policy.

Incentivising R&D Spend: To encourage domestic R&D and testing, it is important to provide exemption on import duty on auto component prototypes. Also retaining of a weighted tax deduction on R&D expenditure is critical.

MSME Definition: Include Wholesale and Retail Trade and Repair of Motor. Vehicles and Motorcycles in the MSMED Act. The subsidies and incentives received under the MSME division will provide much-needed relief to automobile Dealerships which provide 25 lakh direct employment to people near their homes without displacing them.

Reduce GST on EVs and custom duty on lithium-ion batteries: From the Electric Vehicles sector point of view, the previous budget announced was positive for the electric vehicle industry. Players in the electric vehicle space are expecting to see further reforms, incentives, and infrastructure that will drive EV consumption in India.

Technology Development & Acquisition Fund: To face headwinds of changing vehicle norms and to match international standards, a fund needs to be created for supporting R&D and indigenous technology development, especially in light of the technological disruptions in the automotive industry, is witnessing.

Reduction in GST Rates for Used Cars To 5%: The used car business occupies 1.4 times the size of the new car market, accounting for 5-5.5 million cars per annum with a turnover of over Rs. 1.75 Trillion. According to the Federation of Automobile Dealers Association (FADA), authorized dealers account for only 10-15% of this trade, which is also the organized sector thus paying taxes.

GST Refunds and Repayments process: Huge funds of the corporate sector are blocked in tax refunds such as GST refunds, or pre-GST CENVAT credit, or earlier sales tax regime.

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Budget 2020: Infrastructure Boost

•           Ms Sitharaman is expected to announce a plan in the budget to invest Rs 105 lakh crore in infrastructure over the next five years. By then it hopes to make India a $5 trillion economy, compared with $2.8 trillion now, government sources have said.

•      To boost domestic manufacturing, the budget is also expected to increase import duties on more than 50 items, including electronics, electrical goods, chemicals and handicrafts, targeting about $56 billion worth of imports from China and elsewhere.

•          The infrastructure companies sought finance from the Centre for affordable housing and real estate sectors. They claimed that any funds allocated to these sectors in the upcoming Budget 2020 would spur the consumption of cement and steel.

•          Increase in allocation towards schemes such as Pradhan Mantri Gram Sadak Yojana (PMGSY), Pradhan Mantri Awas Yojana – Gramin and  Atal Mission for Rejuvenation and Urban Transformation (AMRUT) will be positive for the infrastructure sector (Roads, Cement; etc.)

•          Increasing allocation to defence shall also boost order books of the infrastructure and capital goods companies. Moreover, the increase in allocations towards large infrastructure projects such as bullet trains, Bharatamala, Sagarmala, Smart Cities, Inland Waterways development, etc will be positive for the infrastructure players.

•          In Budget 2020, the central government should release stuck up funds which were meant for infrastructure sectors to bring back ‘buoyancy’ in the economy, the infra players told FM Sitharaman.

•          Terming the cross-subsidy and transmission charges as deterrents, infra players said that these have been making renewable energy more expensive than thermal power. They suggested that in Budget 2020, the central government should provide exemptions so that cement and other core sectors can play a pivotal part in boosting renewable energy.

•          The centre should also provide exemptions from cross-subsidy as well as transmission charges for clean energy units to be set up beyond factory boundaries.

•          The cement players have asserted that they can even set up 12GW to 15 GW of renewable energy projects provided there is a positive ambience in the country.

•          Infra players have also recommended that the centre must further fine-tune the Income Tax Act, duties and lending rates.