The Goods and Services Tax (GST) may prove to be a speed-breaker for the government as it moves to bring in a vehicle scrappage policy with the aim of getting 15-year-old commercial vehicles off roads in the first phase.

While the Transport Ministry favours the early introduction of the what is also called a clunker plan, the Finance Ministry wants the GST Council to firm up a view on the incentives/tax-breaks that need to be allowed before the policy is implemented, a source said.

The policy is expected to benefit the economy in terms of checking pollution, boosting tax revenues and, most importantly, pumping up new vehicle sales.

For truck buyers, the tax-breaks will help reduce the acquisition cost of new vehicles.

However, the hitch is that the scrappage policy for the auto sector is not top priority for the GST Council, which is weighed down by several implementation challenges, including IT infrastructure.

MS Mani, Partner-GST, Deloitte in India, said that all exemptions in GST need to be approved by the Council after being vetted by officials concerned. “Hence, it is imperative that any proposal in this regard (tax concessions/exemptions for scrappage of vehicles) is forwarded to the GST Council for their consideration,” Mani told BusinessLine .

It may be recalled that the Nitin Gadkari-led Ministry of Road Transport and Highways had proposed a total monetary benefit of about ₹5 lakh per truck, of which half would come from State and Central governments. The rest could come as discounts from manufacturers.

Mandar Athlekar, Head-Global Trade Management, South Asia, Thomson Reuters, said that the approval of scrappage policy has been pending for quite a while now and much would depend on the decisions of the GST Council.

The Highways Ministry has been working on a scrappage policy for commercial vehicles, to start with. Usually new vehicles get used for a certain number of years in certain sectors and then sent to areas where older vehicles can be used.

(With inputs from Mamuni Das)

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