Automakers should cut royalty payments to foreign parent companies and increase efficiencies to lower vehicle prices rather than ask the government to cut taxes, a senior Finance Ministry official said, ruling out tax breaks so that companies overcome the coronavirus crisis and the economic slowdown it has suffered. crimp suit.
Companies such as Maruti Suzuki India Ltd, Toyota Kirloskar Motor Pvt. Ltd, Hero MotoCorp Ltd and Ashok Leyland Ltd have been demanding cuts in the GST rate for cars, as well as incentives to scrap old vehicles, to help jumpstart sales after the pandemic hit India. September 15 Bloomberg The report quoted Shekar Viswanathan, Toyota Kirloskar vice president, as saying that the company will not expand further in India due to high taxes.
The government official, who spoke on condition of anonymity, rejected suggestions made by automakers that high taxes have slowed demand, arguing that India has a moderate corporate tax regime and allows companies to make royalty payments. Without restrictions.
Still, payments for a parent company’s brand and technology use have been a matter of tax disputes, and the government has at times considered re-imposing restrictions to limit overpayments.
“Royalty payments are usually tied to sales and can be made even if the local branch generates losses, as opposed to dividends paid out of profits to the foreign parent. Royalty payments can, of course, affect the final sales price as the cost increases. Although companies have compelling reasons to pay royalties for know-how, trademarks, licenses, etc., obtained from the parent, they can be seen as a means of transferring profits if they are not at arm’s length, “said Amit Maheshwari, partner at Ashok Maheshwary. And Associates Llp.
Maruti Suzuki’s latest annual report showed that royalty expenses paid to parent Suzuki Motor Corp. for fiscal 2020 were ₹3,817 crore, falling from ₹4,490 crore in the previous fiscal year.
“Companies should reduce their manufacturing costs by reducing royalty payments to their parent companies abroad instead of asking the government to reduce the GST,” the official suggested. Royalty payments also get favorable tax rates, under the terms of India’s tax treaties with other countries.
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Vehicle manufacturers have witnessed a steady decline in sales since the second half of fiscal 2019 due to an economic slowdown and an increase in prices due to a change to the more stringent Bharat Stage-VI emissions standards as well. as well as the new safety regulations. In the year ended March 31, vehicle sales fell in the range of 15% to 25% in all categories after reporting low single-digit growth in the prior year.
Cars now attract 28% GST and a tax ranging from 1% to 22%. GST has brought transparency to taxes, highlighting the total tax burden on the final product, the official said, adding that the tax structure was complex in the previously fragmented tax system.
Vehicle sales are expected to fall in the range of 25% to 45% in all segments in this fiscal year, according to the lobby group Society of Indian Automobile Manufacturers.
“The affordability factor is more important in India and it has become even more so now because income levels have dropped. It will take some time to grow to the normal level and grow beyond that, “said RC Bhargava, president of Maruti Suzuki, in an interview on August 9.
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