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Maruti’s RC Bhargava against auto companies’ demand for tax cut

In the first five months of this year, the passenger vehicle market has already declined by 9%.

Updated: Jun 20, 2019, 10.05 AM IST
Maruti Suzuki chairman RC Bhargava
MUMBAI: At a time, when the auto industry body Society of Indian Automobile Manufacturers Association (SIAM) has requested for a cut in goods and services tax (GST) to revive falling sales, RC Bhargava, chairman of the country’s largest carmaker Maruti Suzuki, has opposed such a demand, arguing that the government cannot afford to reduce taxes.

“There's too much investment required not only in infrastructure but in promoting inclusive growth,” said Bhargava. “The government cannot cut back on its revenue and thus cut back on all its social programmes — that's not correct; I don't support it at all.”

This comes days after SIAM lobbied for a reduction in GST on vehicles to induce demand amidst a prolonged slowdown in the industry when passenger vehicle sales have dropped the steepest in 18 years.

In the first five months of this year, the passenger vehicle market has already declined by 9%.

At present, passenger vehicles are taxed in the highest GST bracket of 28%, with an additional cess of up to 22%, depending on the category of the vehicle. SIAM has sought a GST rate of 18% on automobiles.

The introduction of BS-VI emission norms and other safety norms will result in higher vehicle prices in the coming months which will further worsen the situation. If demand for vehicles declines, GST collection will also drop, the industry body argued.

However, allaying fears of his peers, Bhargava, who has seen several such slowdowns during his career in Maruti Suzuki, said that the market has already bottomed out and that demand will only increase from here on.

“My expectation is that June retail sales will be quite a bit more than May. Bottom has already been reached and the upturn is beginning. But we need to wait another two or three months to say this with greater confidence,” he said.

Not only will sales improve, but the industry will end the year registering a growth in sales over the previous year, Bhargava said, adding Maruti is targeting a growth between 4% and 8% this fiscal. “We have not cut our capital budget by a rupee. Going ahead, we will continue to make investments in increasing capacity, new products and R&D,” he said.

Bhargava said that the onus to reduce prices is not on the government; manufacturers must cut costs to lower prices. “The government needs money, else as we have seen in the past, many things will suffer — infrastructure projects, education, health, everything will suffer. So many things have to be done today to help tomorrow,” he said.

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