Road ministry plans to seek GST relief to push vehicle scrapping policy

New Delhi: The road transport and highways ministry will pitch for a lower goods and services tax (GST) or a waiver as an incentive for vehicles bought under the government’s ambitious Voluntary Vehicle Fleet Modernization Programme (V-VMP) popularly called vehicle scrapping policy.

At present a GST rate of 28% is applicable for new commercial vehicles.

A person familiar with the development confirmed the move. “We plan to move a proposal to the GST Council requesting a low goods and services tax amounting to 5% or a complete GST waiver,” the person said, speaking on condition of anonymity. He said the GST council would decide the percentage of waiver tax and its division between the state and centre.

While addressing the media at an event on Tuesday, road transport and highways minister Nitin Gadkari declined to comment on V-VMP. He said the policy was being worked upon and consultancy firm AT Kearney had been hired for it.

Under V-VMP, the road ministry plans to modernize the vehicle fleet in India by taking four-wheelers that are 15-years-old and above off the road. To begin with, the policy will be voluntary in nature and be applicable only for commercial vehicles, later expanding to include private four-wheelers.

As per government estimates V-VMP may entail sending around 60 million vehicles (both private and commercial) to the scrapyard.

As per the draft V-VMP prepared by the road ministry, those who opt for the programme will be incentivized in three ways—a GST waiver, better price for scrapped vehicles and discounts from the original equipment manufacturer (OEM). These incentives are likely to reduce the cost of a new vehicle by 15% on average for a buyer.

This is how the policy will work: car-owners who take their old vehicle to an authorized scrapping agency will receive a certificate entitling them to a GST rebate when they buy a new vehicle. They will also be paid the value of the scrap.

A senior road ministry official on condition of anonymity said, “The road ministry had recently written to Prime Minister’s office to have a meeting for policy consensus before it is taken to GST Council,” adding that concerns raised by the finance ministry have been addressed.

He said many other ministries need to prepare the eco-system for policy implementation, for example, the department of heavy industries would be responsible for setting up scrapping facilities. So their coming on board was very important, he added.

According to the V-VMP draft prepared by the road ministry, one 15-year-old vehicle plying on Indian road has emissions equivalent to 25 new generation vehicles, which makes a strong case. Besides, the transport ministry has also argued that auto-grade metal in India is sold for around Rs6,000 per tonne, while its value is around Rs12,000-13,000 per tonne.

In 2016, Mint was the first to report the government’s plan to come up with a vehicle scrapping policy to combat car exhaust emissions.

Vishnu Mathur, Director General at the Society of Indian Automobile Manufacturers (Siam) said, “The original idea was a tax rebate for the new vehicles under the policy and that is what is being followed.”livemint