Finance Minister Nirmala Sitharaman on Tuesday indicated that the GST rate on two-wheelers could be lowered.

Addressing a meeting of industry captains organised by the Confederation of Indian Industry, Sitharaman is said to have given them an assurance that this will be taken up with the GST Council during a forthcoming meeting.

“This is indeed a good suggestion as this category (two-wheelers) is neither a luxury nor a sin good and, hence, merits a rate revision,” a CII statement quoted her as saying.

Since the meeting scheduled for August 27 is said to have a single-point agenda of discussing States’ revenue compensation, the rate revision may be taken up at the GST Council’s next meeting, on September 19.

As present, two-wheelers such as motorcycles and scooters, excluding the electric ones, attract 28 per cent GST. During the April-July period of this fiscal, two-wheeler sales fell to 25.74 lakh units against 65.25 lakh in the previous-year period.

However, despite the pandemic, the demand has been reasonably good, particularly in rural India. The rate cut is expected to increase the demand further. The two-wheeler market in India is pegged at around 20 million units per annum, with bikes of under-150 cc accounting for the bulk of the sales.

Cess on tobacco products

Simultaneously, there is a possibility that the August 27 meeting will also consider a proposal to increase the sin tax.

This could mean higher cess on items such as tobacco products. Health activists and medical professionals, along with economists, have been urging the GST Council to raise the duty on tobacco products.

A back-of-the-envelope calculation indicates that the proposed compensation cess of ₹5 per stick of cigarette and ₹1 per stick of bidi, and the cess at the rate of 52 per cent on smokeless tobacco, could yield revenues of up to ₹50,000 crore. The Centre can use this to compensate the States, which are also starved of revenues.

There are 29 items on which compensation cess can be levied. These include automobiles, large TVs, air-conditioners and cement apart from tobacco-related products. However, experts feel increasing the tax rate, or even the cess, on non-tobacco items will only dampen demand.

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