Auto stocks slide on report GST Council unlikely to back tax cut for sector

Shares of automobile companies, including auto ancillary firms, traded lower on Wednesday on report that the goods and services tax (GST) panel is unlikely to approve lowering the tax for the sector this week, as a study has warned of major revenue losses.


According to this Reuters report, a government study, attached to the agenda of a September 20 GST panel meeting, has said the total annual revenue loss could be as much as Rs 50,000 crore ($6.95 billion), if the panel decided to lower tax rates for the auto sector to 18 per cent from 28 per cent.

Another report by The Economic Times said the government body blamed the current liquidity crisis and troubles of non-bank lenders for the woes of the automobile sector.

Meanwhile, state officials in Kerala, Punjab and West Bengal say they are also opposed to any cut in tax rates in the autos sector, or even consumer goods, because of lacklustre tax collections this fiscal year.


Consequently, the Nifty Auto index dipped nearly 1 per cent on Wednesday as compared to a flat benchmark index Nifty50. Among individual stocks, Hero MotoCorp, Escorts Limited, Tata Motors, and Bosch dipped in the range of 1-2 per cent. Maruti Suzuki India slip 2.3 per cent while Ashok Leyland was down as much as 4.2 per cent on the National Stock Exchange (NSE).


The automobile industry has been facing challenges since past three quarters in terms of additional burden of new insurance policy, constraints on loan disbursement from financial institutions and higher axle load norm impacting commercial vehicle (CV) sales, say experts.


The sector has pushed for a lowering of tax rates at the September 20 GST panel meeting, in a bid to revive vehicle demand.