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Budget 2017: Only GST will be able to boost industry growth

It is likely that the GST rates would be firmed up shortly, which would mean an insignificant change in the indirect tax rates in the Budget and may be coupled with rationalisation in the tax structure to facilitate GST implementation

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The automotive industry is pivotal to any economy as it works congruently with other sectors such as capital goods, iron and steel, aluminium, machine tools, mould and dies, plastic, glass, chemicals, lead, rubber, logistics, banking, insurances and repairs, etc.

Currently, the industry is going through significant changes. The four trends that dominate the global markets are autonomous vehicles, connected cars, mobility-on-demand and the rise of electric and hybrid vehicles. We can see these cascading to the national level, becoming both an opportunity and a threat. At the core, the issues that haunt the Indian automotive industry are unpredictable growth, infrastructure, spontaneous regulatory reactions, tax structure, lack of proper laws on vehicle replacements, lack of compelling incentives to promote alternate fuel vehicles and inadequate incentives to promote exports, etc. Additionally, the land and labour laws are not supportive for manufacturing push.

In the current scenario, only GST will be able to assist the growth of the industry. It is likely that the GST rates would be firmed up shortly, which would mean an insignificant change in the indirect tax rates in the Budget and may be coupled with rationalisation in the tax structure to facilitate GST implementation.

Some of the key expectations from the Budget are:

Reduce corporate tax rates.

Reduce individual tax rates to help increase disposable income of individuals.

Increase allocation towards infrastructure spending to help create demand.

Increase incentive toward research and development to be on par with the global counterparts.

Increase in deprecation rates to reflect the usage of plant and machinery in the industry.

Promote fuel efficiency and alternative fuel for small vehicles by competitive tax rates.

Provide incentives for alternate fuel vehicles would compensate for the increased cost to buyers.

Provide specific incentives for fleet modernisation and a law for mandatory replacement of aged vehicles.

The writer is partner, PwC

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