DON’T LOOK TO CENTRAL GOVERNMENT FOR HELP, AUTO COMPANIES TOLD | AUTOMOTIVE NEWS | AUTO REPORTER
Updated: Sep 19, 2020
Automakers should cut royalty payouts to foreign parents and increase efficiency to reduce vehicle prices instead of asking govt. To lower taxes, a finance ministry official said, ruling out tax breaks for the companies to ride out the COVID-19 crisis the economic slowdown that has set demand.
Companies including Maruti Suzuki India Ltd, Toyota Kirloskar Motor Pvt. Ltd, Hero MotoCorp Ltd, and Ashok Leyland Ltd have been asking cuts in the GST rate on automobiles and incentives to scrap old vehicles to recover sales the pandemic hit India. A 15 September Bloomberg report cited Shekar Viswanathan, vice-chairman of Toyota Kirloskar, saying that it won't elaborate further in India because of high taxes.
The government official, who spoke on anonymity, denied the automakers' suggestions that high taxes have depressed demand, arguing that India has fair corporate tax management and allows companies to make royalty payments without restrictions.
However, the payouts for using a parent company's technology and branding have been a topic of tax disputes. The govt. Has, at times, considered re-imposing barriers to limit unnecessary payments.
Amit Maheshwari, partner, Ashok Maheshwary, and Associates Llp. said that Royalty payments are typically connected to sales and can also be made if the local arm is loss-making, unlike dividends paid from earnings to the foreign parent. Royalty payments can, of course, affect the final sales price as it adds to the cost. Although businesses have compelling grounds to pay a royalty for technical knowhow, brand, licenses, etc., received from the parent, they can be viewed as means of shifting profits if they are not at arm's length.
Maruti Suzuki's newest annual report revealed that royalty expenses paid to parent Suzuki Motor Corp. for FY20 were ₹3,817 crores, dropping from ₹4,490 crores previous fiscal.
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