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Automotive Product Finder Magazine | Corporate tax cut may boost auto sales through price reduction
Corporate tax cut may boost auto sales through price reduction
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To push sales, automakers are likely to pass on some benefits of tax revision to the end consumer by lowering product prices.
The slashing of corporate tax to 22 per cent for domestic companies (from 30 per cent) brought a sigh of relief to the Indian automotive industry, going through the pains of slowdown. Though there was nothing in particular for automakers, tax cut is expected to give a boost to consumption and thus aiding auto sales. “The recent announcement by the finance minister aimed to bring structural reforms in the economy by lowering the corporate tax will help in uplifting the market. It comes at the right time to capture the slowdown. These measures will not only positively impact the revenues but will also strengthen India’s stand globally and promote fresh investment,” said Nishant Arya, Executive Director, JBM Group.
As per the new provision, any domestic company has an option to pay income-tax at the rate of 22 per cent (25.17 per cent inclusive of surcharge & cess) subject to condition that they will not avail any exemption/incentive. Also, such companies will not be required to pay Minimum Alternate Tax (MAT). According to Finance Ministry officials, the total revenue foregone for the reduction in corporate tax rate and other relief is estimated at Rs 145,000 crore.
Terming it as unprecedented and bold move, Vikram Kirloskar, President, CII, said, “Finance Minister’s mega corporate tax stimulus is a major move to boost investor’s sentiments, encourage manufacturing and awaken animal spirits in the economy. Cut in corporate tax from 30 per cent to 22 per cent (without exemptions) has been a long standing demand of industry and is an unprecedented and bold move by the government.”
Vinod Aggarwal, MD & CEO, VE Commercial Vehicles (VECV), added, “The new tax reforms are an excellent initiative from the Government of India and a step in the right direction. We welcome the reductions in the corporate tax rates which were quite high earlier. This should help the industry to grow with a due higher investible surplus now.”
To push sales, automakers are likely to pass on some benefits of tax revision to the end consumer by lowering product prices. For example, Maruti Suzuki India Ltd reduced the price of select models (Alto 800, Alto K10, Swift Diesel, Celerio, Baleno Diesel, Ignis, Dzire Diesel, Tour S Diesel, Vitara Brezza and S-Cross) by Rs 5,000 (on ex-showroom price).
In order to attract fresh investment in manufacturing and thereby provide boost to ‘Make-in-India’ initiative, the Government has reduced the corporate tax for new domestic manufacturing company to 15 per cent. This benefit will be available to companies which do not avail any exemption/incentive and commences their production on or before March 31, 2023. The effective tax rate for these companies will be 17.01 per cent inclusive of surcharge & cess. Also, such companies will not be required to pay MAT.
“This is a welcome structural change and comes as a great respite to corporates. This positive move from the Government of India will lead to further investments in the country as well as create more business opportunities. The ‘Make in India’ initiative will thus get a further impetus,” said Shekar Viswanathan, Vice Chairman and Whole-time Director, Toyota Kirloskar Motor.
As far as automotive sector is concerned, Viswanathan believes that on a mid to long term basis, the government should consider the merits of moving towards a carbon (fuel efficiency)-based GST taxation policy which will not only lead to huge fossil fuel savings but will also help in lowering emissions.
The decision to bring down tax rates for new manufacturing companies makes Indian tax rates competitive with other Asian countries thus incentivising multinationals, looking for an alternative to China, to shift their manufacturing base to India. Soumitra Bhattacharya, Managing Director, Bosch India, said, “Bosch welcomes the government’s decision to reduce corporate tax. This positive structural change brings a great respite to the auto industry. The move will enable automakers to reinvest the saved amounts by putting it into new products, marketing initiatives as well as expanding production facilities. This will improve the overall sentiment among the entire industry.
VE Commercial Vehicles
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