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.

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