Will Budget 2013 mark the come-back of auto sector?
Senior tax professional - Automotive services
Ernst & Young
While turmoil caused by last year budget is still settling down, the countdown has started for this year's budget. While presenting the Union Budget 2013, FM would be wary of widespread protest that had arisen as a result of certain controversial budget proposals last year. It would be interesting to see as to what could be there in offering for the Indian automotive sector to mark its come-back.
The Indian auto industry had sustained the 2009 crisis. But there was a remarkable turnaround in 2010 and 2011. Gauging potential opportunities, heavy investments were planned in auto sector. However, these investments have been held back in view of lethargic growth shown by automotive sector in 2012. With current turbulence in auto sector, high interest rates, towering fuel prices, depreciating rupee coupled with general economic slowdown, performance of auto sector in fiscal year 2013 looks no different. Here is what the Government could set free in Budget 2013 to combat the spiky task to cobblestone the comeback path for auto industry.
While DTC, GST and Companies Bill topping the priority chart, some hurdles are yet to be crossed before they are enacted. On direct tax front, while Ministry may take its own time to take forward the suggestions of Standing Committee, it is contemplated that some key DTC proposals may find their way in this year's budget itself. If so, one would hope that FM would avoid the turmoil like last year by considering stakeholder representations before introduction of new provisions.
While statistics confirm that domestic OEMs have been the backbone of auto component sector, in recent years, considering the volatile currency market, even global OEMs have also indigenized substantially to reduce rising imports bills. This has thrown significant growth opportunities for domestic players. Focus on quality and adherence to international standards could provide future growth opportunity in terms of exports to foreign groups. Companies abiding to stringent international standards providing future growth opportunity could be incentivised in form of export-linked differential benefits. FM may accelerate eco-friendly vehicles segment by launching investment linked incentives.
Steps for encouraging adherence of stringent emission norms could be taken by incentivizing purchase of new vehicles complying with emission norms. Further, support in form of reduced taxes on CNG/ LPG/ Hybrid and other alternative fuel vehicles would also lure more usage of these vehicles.
On indirect tax side, parity may be established between manufacturers and traders by introduction of refund mechanism for manufacturers of unutilized credit generated due to rate differential on import of components and output liability. Similarly, other concessions such as reduction in excise duty rates, full CENVAT credit on capital goods in year of purchase, removal of superfluous restrictions on input credit availability on closely-linked services and removal of interest on differential excise duty on subsequent price increase would provide significant relief. Elimination of customs duty on aluminum and alloy steel items would help auto sector to combat cheap imports effectively.
The recent impulsive policy change of partial deregulation of diesel prices in fiscal year 2013 reducing price differential between petrol and diesel would put substantial investments planned in this sector at risk.
Demand enjoyed by diesel car over petrol car would be affected. To arrest any further injury, Government should refrain from imposing any additional duty on diesel cars to discourage diesel usage for non-commercial purpose. On direct taxes front, this capital intensive industry would hope for higher depreciation allowance, clarification on possibility of claiming weighted deduction on construction of test tracks.
Further, reduction of MAT rate and allowing additional depreciation on assets put to use for less than 180 days in subsequent year would bring cheer to auto sector.
Any clarifications on burdensome domestic transfer pricing provisions would provide some certainty. The Government's move to bring in desired certainty by introduction of advance pricing agreements in last year's budget may be taken forward by introducing the long awaited safe harbor rules and extension of advance ruling facilities to resident taxpayers.
Rationalization the limits of present tax concessions for individual taxpayers with present-day inflationary trend, enhancing basic tax exemption limit to Rs 3 lakhs would augment disposable income of individual customers. This could stimulate demand in auto sector. A deduction under income tax for interest on vehicle loans would serve the purpose of recent rate-cut by RBI. This would also increase Government's revenues by way of taxes due to increased level of sales.
All-in-all, this year's budget may focus on bringing stability and prioritizing the growth prospects to revamp India's global image of an unstable tax environment. Fast tracking the implementation of DTC, GST, tax accounting standards and new Companies Bill with due consideration to stake holders representations would be some of the foremost measures that the FM may address in the upcoming budget. One would hope that FM, with some resourceful reforms, takes the auto industry for a long drive on the growth path.
(Views expressed are personal)