NITI Aayog Seeks GST Relief for Vehicle Scrapping

The NITI Aayog has recommended reducing the GST (Goods and Services Tax) rates on vehicle scrapping through formally registered scrap facilities, to encourage the recycling of end-of-life vehicles. The tax structure currently favours informal operators that are not subject to GST compared to formal operators.

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The NITI Aayog report titled ‘Enhancing Circular Economy of End-of-Life Vehicles’ sets out the necessary steps for a viable ecosystem. The increasing volumes of end-of-life vehicles on the roads necessitate a more efficient and sustainable approach to scrapping vehicles.

Some recent central government measures include fitness testing for used vehicles, standardised testing protocols and expanded producer responsibility. 

Tax Disadvantage for Formal Facilities

The formal scrapping of end-of-life vehicles is disadvantaged because GST is not uniform throughout the various stages of scrapping vehicles. Historically, formal scrap facilities were charged between 12% and 18% GST on their purchase of raw materials and on their sale of metal (scrap) materials. 

At the same time, any spare parts resold carried 28% GST. However, from September 22, new GST slabs were implemented to enable the separation of products into a 5% and 18% band. 

Almost all spare parts would fall into the higher 18% slab, while informal (non-registered) scrap facilities would pay no GST.

Push for Rate Parity

Tax breaks on GST help bring both registered vehicle recycling centres and unregistered recyclers into parity on price, giving registered centres an incentive to operate within the framework and report to the government. A cohesive model for vehicle recycling and dismantling, as well as resale, will create an opportunity for affectionately responsible recycling of End of Life Vehicles (ELVs). 

The government’s regulatory framework will foster the shift from a predominantly unregistered industry to a registered and compliant industry. To this end, the government has corporate fitness mandates for automobiles as well as a standardised scrapping protocol that will enable the recovery of valuable materials in the most environmentally responsible manner.

Building Sustainable Recycling Ecosystem

The introduction of vehicle fitness rules that cover the entire lifecycle of a vehicle and the establishment of a scrapping protocol that is used to recover material from vehicles safely create an ecosystem in which the recycling system can be improved.

Formal scrapping practices improve the ability to recycle metals and reuse parts from end-of-life vehicles. A sustainable recycling ecosystem will be created by aligning the environmental and economic goals of parties that are working together in this ecosystem.