Demand for reduction in GST on low emission two-wheelers, know the reason behind this appeal of the Indian auto industry

The Indian automobile industry is appealing to the government to encourage the adoption of low-carbon emission two-wheeler technologies by reducing the Goods and Services Tax (GST). The Indian Automobile Manufacturers Association (SIAM) has proposed a level GST framework especially for flex-fuel and CNG two-wheelers in a letter to the Ministry of Heavy Industries.

At present, all two-wheelers in India are subject to GST at a uniform rate of 28 percent. Which the industry says discourages the adoption of clean fuel options. According to media reports, their proposal advocates an 18-12 percent GST slab for these low-carbon emission technologies. Which can make them more price-competitive than conventional gasoline-powered vehicles.

This pressure for lower GST is part of a multi-pronged strategy. First, it aims to address environmental concerns. CNG, which is already a popular fuel choice for buses and cars, emits significantly less pollution than gasoline. Flex-fuel vehicles, which are designed to run on higher ethanol blends, also offer a path toward cleaner transportation. By reducing GST on these options, the industry hopes to encourage their adoption and contribute to reducing overall vehicular emissions.

Second, doing so will make these vehicles more affordable for people than before. Two-wheelers are an important mode of transport in India, playing a key role in various sectors such as e-commerce and delivery services.

However, industry sources point out that the initial cost of two-wheelers, which includes 28% GST, 15 years of road tax, and 5 years of third-party insurance premium, is extremely high. This limits the widespread adoption of two-wheelers in comparison to other Southeast Asian countries. They use Thailand and Indonesia as examples, claiming that their low GST rates of 7% and 11%, respectively, contribute to a high two-wheeler penetration rate.

SIAM proposes a two-pronged strategy for GST reduction. They propose an initial drop to 18% for flex-fuel and CNG two-wheelers, followed by an additional decrease to 12% after the base GST rate for all two-wheelers is reduced to 18%. They also urge for the complete elimination of the current 3% cess on two-wheelers over 350cc.

CNG and flex-fuel technology require substantial investment to develop. And industry experts believe a lower GST rate is crucial to make these vehicles economically attractive to consumers.

The Ministry of Heavy Industries has yet to respond to the proposal. While they can technically recommend changes to the Finance Ministry, the proposal is still pending. The final decision on GST reduction rests with the GST Council. This effort by the industry highlights India's growing focus on promoting clean transport solutions and the potential role of lower GST rates in achieving this objective.