Budget Expectations for Automobile Industry

  • Jun 19, 2014
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GST, excise duty cut are top priority for the upcoming budget

Union Budget 2014

Uniform excise duty on passenger cars, a scrappage policy and implementation of GST feature among the top expectations of the Indian automotive industry from the Prime Minister Narendra Modi's first general budget.

Society of Indian Automobiles Manufacturers during an interaction with the Commerce Minister suggested the government should extend the reduced excise duty on vehicles. It has also lobbied for a new free trade policy, enhanced export incentives for vehicles, streamline and free inter-state movement of vehicles.

In addition to this, the lobby group for the automobile industry has sought government support for promotion of electric and hybrid vehicles and prevention of overloading, enhancing road safety, Emission and Fuel Efficiency norms, Fleet Modernisation and Scrappage policy.

The apex body representing auto component suppliers Automotive Component Manufacturers Association (ACMA) sought the continuation of 10% Excise duty on Auto Components and removal of customs duty on alloy steel, mild steel, aluminium Alloy and secondary aluminium alloy.

Domestic Steel / Aluminium Alloy suppliers have benchmarked their prices based on the landed prices. This makes the inputs expensive for the domestic component manufacturers. Further, due to various trade agreements, auto components are facing reduced customs tariffs in comparison to the basic raw materials needed for their manufacture; this has resulted in inverted tariff structure in some of the cases. Elimination of customs duty on the raw material will therefore set right the equation.

Expressing hope, Harish Lakshman, President, ACMA said, "The automotive industry is one of the key drivers of the Indian economy, which is currently undergoing unprecedented downturn, it is therefore critical that focussed attention be given for stimulation of the automotive industry; we are hopeful for a favourable outcome from the forthcoming budget".

It also seeks input credit on diesel as due to power shortage manufacturers have to resort to generating their own power though gen-sets thus increasing the cost of production. It is recommended that such manufacturers be allowed to avail input credit on diesel procured for internal power generation.

The component manufacturers also suggest that government should announce a step in the upcoming budget to encourage research & development

Presently 200% weighted deduction under section 35(2AB) of the Act is available for in-house R&D facility and 175% weighted deduction on outsourced R&D from approved Institutions i.e. National Laboratories, Universities, Scientific Research Institutes and IITs. A 200% weighted deduction should be extended to R&D facilities, which are outsourced to Third-Party service providers or other institutions.

"The current depreciation rate on Capital Goods should be enhanced to 25% from 15%. Further, domestically manufactured capital goods be allowed40% Depreciation. This will encourage Capital investment in the industry," ACMA said.

This segment of automotive business having invested over Rs. 45,000 crores, provides direct employment to over 700,000 people and contributes around Rs. 70,000 crores by way of VAT, CST, service tax and road tax to the Central & State exchequers.

Federation of Automobile Dealers Association (FADA) representing organized automobile dealers and workshop. The sector has invested over Rs. 45,000 crores only in infrastructure (excluding of working capital), and provides direct employment to over 700,000 people and contributes around Rs. 70,000 crores by way of VAT, CST, service tax and road tax to the Central & State exchequers.

FADA in letter sent to the Finance Minister Arun Jaitely said "All passenger cars irrespective of fuel, engine capacity and size should attract the same rate of excise duty, viz. 12%."

It also added that the depreciation allowance on passenger vehicles, including cars, UVs and MPVs, may be increased to 33 1/3%, as the product/ownership cycle is becoming shorter and the used vehicle prices have crashed.

Commercial vehicles are the worst affected by the economic slowdown with sales of M&HCVs declining by 40-50% over a period of last two years. FADA wants an accelerated depreciation allowance of 60% for purchase of commercial vehicles may be allowed for a period of 2 years, as was done in 2008 post global financial crisis.

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