Finance Ministry says two-wheelers merit GST rate cut

The Government of India's Finance Ministry is evaluating a proposal that will slash taxes levied on two-wheelers, in order to fuel demand.

• Current GST rate is 28 percent

• Industry expects GST to come down to 18 percent

• Rate cuts expected to help boost demand

Addressing the virtual Confederation of Indian Industries (CII) forum, Finance Minister, Nirmala Sitharaman said that it is a “good suggestion to cut GST on two-wheelers as this category is neither a luxury nor a sin good and hence merits a rate revision”. She adds that this suggestion will be taken up with the GST council.

While a decision has yet to be taken, a rate revision will certainly work as a shot in the arm for the industry, which has been struggling to deal with a slump in demand. This has been mainly due to an increase in prices by 15-18 percent due to factors like the IRDA’s mandatory 5-year third-party insurance norm, upgrades to meet safety regulations, and the recent implementation of BS6 emission norms. To add to this, the COVID-19-induced lockdowns have also impacted demand significantly.

At present, two-wheelers attract a hefty 28 percent GST, which is the highest slab. The industry hopes that the GST on two-wheelers is reduced to 18 percent. 

A revised tax rate is expected to lower prices of new two-wheelers, making them a little more affordable. This should boost sales by attracting customers who are slightly weary about spending in the new COVID-19 world.

Also, with the COVID-19 pandemic creating a shift towards personal mobility solutions, any move to enhance affordability could act as a catalyst to spur demand and drive the revival of the segment, and indirectly, the industry.