New Delhi, Jan 17 (PTI) Automobile dealers' body FADA has urged the government to reduce GST rates on two-wheelers to 18 per cent in order to generate demand in the segment.

The Federation of Automobile Dealers Association (FADA), which represents over 15,000 automobile dealers having 26,500 dealerships, noted that two-wheelers are not a luxury item and hence GST rates need to come down.

"FADA requests the Ministry of Finance to regulate and reduce GST rates on two-wheelers to 18 per cent and continue to move our nation to global leadership," the industry body stated on Monday.

Finance Minister Nirmala Sitharaman is scheduled to present the Union Budget 2022-23 in Parliament on February 1.

It is noteworthy that two-wheelers are used not as a luxury thing but as a necessity to travel distances, especially by people in rural areas, for their daily working needs, it added.

"Hence the rationale of 28 per cent GST + 2 per cent cess which is for luxury/sin products does not hold good for the two-wheeler category," FADA noted.

At a time when vehicle prices are increasing after a gap of 3-4 months due to rise in input costs and various other factors, a reduction in the GST rate will counter the price hike and help spur demand, it added.

"FADA believes that the growth in demand and the ripple effects it will have on many dependent sectors will increase the tax collections. In the mid to long-term it will actually be revenue positive and also help bring in positivity in the overall consumer sentiment and thereby the overall economy," the industry body stated.

It also sought a uniform GST rate of 5 per cent on the margin for all used vehicles, to create a win-win situation for the government, dealers, and vehicle owners.

"With the reduction in GST, it will help the industry to shift from unorganised segment to organised segment thus bringing in more business under the ambit of GST helping in putting brake on tax leakages," FADA noted.

The government currently charges GST on used cars at the rate of 12 and 18 per cent.

The cars under 4,000 mm are charged 12 per cent GST and the vehicles above the 4,000 mm mark are taxed at 18 per cent.

"The used car business occupies 1.4 times the size of the new car market, accounting for 5-5.5 million cars per annum with a turnover of over ₹ 1.75 trillion. Authorised dealers account for only 10-15 per cent of this trade," FADA stated.

The industry body noted that the government has reduced corporate tax to 25 per cent for private limited companies with turnover of up to ₹ 400 crore.

"The same benefit should also be extended to all LLP, Proprietary and Partnership firms as most traders within the auto dealership community fall in this category. This will help boost morale and sentiment of the traders which employ 5 million people," FADA stated.

To make the sector grow faster, the association requests the government to take bold steps, it added. FADA also urged the government to reintroduce the 'Depreciation Scheme' for FY 2022-23.

GST rate on two wheelers urged to be lowered to spur demand, curb tax leakage and formalise used vehicle trade. FADA urges a reduction of the GST rate on two wheelers as they are a necessity, not luxury, arguing a lower rate will counter price rises, spur demand, shift sales to the organised sector, reduce tax leakage and be revenue positive in the medium to long term. It also seeks a uniform GST on margin for used vehicles, extension of reduced corporate tax benefits to LLPs and proprietorships in the dealer community, and reintroduction of a depreciation scheme to support industry growth.