Is India Using GST Rate Cut to Attract International Businesses?

In the present day, domestic as well as international businesses hold a vital place in the country’s economy. But, both the businesses have several hindrances as the country’s GST is burdened over it. India was lately introduced to GST as it brings in various benefits to the Indian economy. GST was induced by the government to eliminate the bundles of other hidden taxes such as VAT, CST, Service tax, SAD, CAD, and Excise also, it strives to remove the cascading effect of taxes. Thus, one nation one tax, GST is expected to offer the products or services to the customers at considerably cheaper prices.

But, the country’s GST has a negative impact on the businesses be it foreign or domestic, as the charges are quite burdening for the businesses to cope up with. Citing the country’s high GST many foreign clients have backed out and have been requesting the country to consider reframing the GST structure to launch their businesses in India.

Recently, Assocham has suggested the government consider cutting the GST rates by 25 percent for all slabs which in turn might favor the businesses to pay more GST that indeed would boost up the revenue. But, on the contrary, the experts predict that such measures would add on an extra burden of around 1.2 lakh crores on the country’s budget. However, some economists assert that GST is being spilt up as IGST, CGST, and SGST on the Center and State Government, and this in no different from Central Excise, VAT, Service Tax, CST, and more.

At present, as the businesses are gradually restoring from the damage caused by the pandemic, many businesses including the international businesses that are considering the Indian market to launch their business have requested the government to consider imposing GST rate cut on the businesses. Considering the increasing requests, the center has assured that it would scrape the incentive scheme and cut down the goods and services tax rates to aid the businesses to revive back to their original condition. This announcement was made at the 60th annual conclave of the Society of Indian Automobile Manufacturers (Siam) as a measure to restore various sector post the pandemic’s negative impact.

Prakash Javadekar, Union Minister of Heavy Industries and Public Enterprises told, “The demand push has to be done immediately. The GST Council will have to take into account the revenue impact and other factors. I hope you get some good news very soon.” 

This statement hints that the center is considering to industry's demand for a 10 percent GST rate cut across various categories of vehicles. Also, the GST slabs would range from 5 to 28 percent in the auto sector depending on the vehicle type.

Rajan Wadhera, President, Siam, had also made a strong pitch for incentives that could raise the demand ahead of the festive season.

However, the auto industry feels that at present the demand in the sector is pretty high, and thus the government should consider implementing this GST relief when the demand gets deteriorating in the future.

R C Bhargava, Chairman, MSI has stated, "The industry has done pretty well in the second quarter and I don't think that anybody's sales have suffered due to the lack of demand. What I am able to work out at the moment is that the production capacity more than anything is still being built up due to various constraints. Therefore, if I was in the government at this time when there is no lack of demand, giving relief at this stage would be quite unnecessary." (Source: Hindustan times)

Alongside this, commenting on the result of the GST rate cut and when the country could impose it Bhargava says, “I am selling everything I am producing. If the GST went down and demand increased by another 30 percent I won't have cars to sell.” He adds, "I don't know how demand will develop in the coming months, what happens to the customer demand and the market."

The high GST rates are also hindering the new businesses to enter India as well as forcing the existing businesses to terminate their operation in India. Many auto giants such as Harley Davidson and more had decided to shut down its Indian operation due to the higher GST rates. Thus, the government is considering the request of the GST rate cuts to attract foreign businesses to the Indian market.

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