FICCI for tax review in auto retail sector

New Delhi, Apr 15 (UNI) To give the desired thrust to the auto retail sector, there is a need to review the existing provisions with regard to VAT, Service Tax and Fringe Benefit Tax (FBT), an industry chamber said today.

In a representation to the Ministry of Finance and the Empowered Committee of State Finance Ministers, FICCI has outlined a five-point strategy for the growth of the auto retail sector.

Firstly, levy of value added tax (VAT) at 12.5 per cent (four per cent in some states) on sale through registered dealers of used vehicles, which have already suffered a sales tax, places the organised sector at a distinct disadvantage.

''This high rate of VAT on used cars is weaning the customers away to the brokers in unorganised sector who do not levy any VAT on pre-used vehicles,'' it said.

It should be imposed at four per cent. The four per cent rate so fixed should be of the value addition at the dealer's end with input credit been given for the inputs used for reconditioning of vehicles.

The chamber has been urging that VAT rates should be uniform across all the states so that free movement of goods can take place.

However, if imposition of four per cent across states with input credit is not possible then at least one per cent of the resale value of the used vehicles should be charged without any input credit.

Secondly, depreciation allowance on passenger cars should be increased to 33.33 per cent, as the product cycle is becoming shorter and the used vehicle prices have crashed over the period.

It is important to note that it takes almost seven years to fully depreciate the vehicle even if depreciation is allowed at 33.33 per cent on Written Down Value (WDV), which is realistic.

Thirdly, a clarification may be issued by the Ministry of Finance to provide that automobile dealers are not selling vehicles on behalf of manufacturers on commission basis but on principal to principal basis.

It is equally important that incentives should not attract service tax.

Fourthly, FICCI has strongly urged the Government that the FBT provisions should be reviewed to make it more meaningful.

It should be simplified and rationalised and all genuine and legitimate business expenses taken out from its purview.

While doing so, in the interest of auto retail sector, a clarification may be issued that demo cars/replacement cars/ on-road service cars/ fuel used at Pre-Delivery Inspection (PDI) and complimentary fuel given to customers at the time of delivery by automobile dealerships will not attract FBT.

And lastly, Service Tax should not be levied even on the notional value of free service in cases where there is no reimbursement of the same by the manufacturer to the dealer because VAT is being paid on the entire sale value.

UNI