Corporate profits

Tax cuts designed to protect corporate profits, with no benefit for consumers

Auto industry rules out price cuts

Pawan Goenka, managing director of Mahindra and Mahindra Ltd (M&M), has ruled out any move to pass on the benefits of the corporate tax rate reduction to consumers through a reduction in the prices of vehicles sold by M&M . “One thing – somehow a false expectation has arisen over the last two or three days that because of this automakers will be able or willing to cut prices significantly,” Goenka told a TV station.

“The call that the Indian government has taken is rather than doing short term stimulus, they are going to put money in the hands of the business for medium to long term growth and that will get the Capex (capital expenditure ) current cycle It will get more capacity and more jobs rather than an immediate demand stimulus If you do the math, even if we were to transfer all the tax benefits we will get, 100% in vehicle price, we can reduce the vehicle price by around 0.5%, which means on a ₹8 lakh car around ₹3,000,” he added. “This (corporate tax cut) will not stimulate demand and most automakers, including M&M, have already given a fairly significant increase in incentive for the holiday season, from 3% to 7% . So I don’t think there’s room for any further pass-through of the tax benefit,” he said flatly. Thus, the tax reduction is not intended to be passed on to consumers but to be retained by industry.

RC Bhargava, chairman of India’s biggest automaker Maruti Suzuki, said the tax savings after the Union finance minister’s announcement are tiny and not enough for India’s biggest automaker to cut the price of its cars. offers.

Rajiv Bajaj, managing director of Bajaj Auto, echoed Bhargava and Goenka’s sentiments by ruling out price cuts for potential buyers in the coming months. “FM has reimbursed us for all the money we spend both in terms of the consumer offering and the media spend behind it. So if you look at it that way, it’s not trivial,” said he declared.

However, Goenka and Bhargava are not committing to any immediate Capex program. The auto industry is already partially closing its existing factories for a few days a month due to lack of demand. Rajiv Bajaj, however, said the tax cut will boost his company’s ability to invest in new technology for electric vehicles.

Thus, the automotive industry will not pass on the benefit of the tax cut to consumers, nor does it have any immediate Capex programs on the table. Thus, the industry will keep the tax benefit as a war chest for the future.