Automobile Industry

Impact Of GST – Small Cars To Get Costlier

GST Impact On Cars

Here’s all you need to know about the impact of GST on cars and two-wheelers

As India is set to embrace the multi-tiered service and tax structure, GST, here’s a look at what it could mean to the automotive industry that lately gained stability from the demonetization aftermath. While tax figures for different car categories have been revealed, there is still no clarity on some aspects that could directly impact the pricing of vehicles. Here’s all you need to know about the impact of GST on cars and two-wheelers.

Implications of GST-
While the Society of Indian Automobile Manufacturers (SIMA) is still studying the possible consequences of GST on the Indian automobile industry, the cars that are set to be taxed at the top rate and an additional cess between 1% to 15% will witness fluctuation in terms of pricing. Read More – GM Stops Selling Chevrolet Cars in India – Reasons Explained

Small cars set to get pricier-
Dominating the Indian automotive industry since its inception, the small cars are likely to undergo a price hike post the roll out of GST. The duty on small cars is set to witness a jump by 3-4% from the current 25-26% to 29-31%. This comprises the fixed 28% GST and an additional 1% for petrol cars with less than 1200cc engine and 3% for diesel cars using engines below 1500cc. With GST in place, cars including Maruti Alto, Renault Kwid, Maruti Celerio, Maruti Baleno, Volkswagen Polo and Hyundai i20 are set to witness price hike.

Impact on exports of small cars-
Since India is the hub of production for small cars exported to overseas markets, this could indeed affect the exports of small cars. While we still await more details on the same, but with the new tax structure, exports of small cars could be affected.

Sub Four-meter era about to end?
According to the new duty structure, the sub four-meter vehicles are likely to be impacted. Models such as the upgraded Hyundai Xcent, recently launched Maruti Dzire, Volkswagen Ameo etc are likely to bear the brunt of change in taxation. Read More – Petrol Vs Diesel Cars – Which One Should You Buy

Mid-Size sedans likely to benefit-

This could also mean that customers will once again start looking at full size sedans with four meters of length which includes models such as Maruti Ciaz, Hyundai Verna and Honda City. These vehicles are already attracting a high tax of around 43%. With the GST, these vehicles are unlikely to witness no change in the total tax. The fixed tax of 28% and 15% of additional cess comes up to the same number (43%), which means mid-size sedans are likely to benefit from the situation.

Luxury vehicles will get cheaper
Luxury car manufacturers have a reason to rejoice. With the implementation of the new tax structure under GST, the total tax levied on the luxury cars may drop, inferring reduction in car prices. Currently, the premium cars with engines equal or larger than 1500cc are taxed between 41.5% to 44.5% including the 27-30% central excise duty and the additional state VAT. With the GST in force, the total tax including the 28% base and 15% cess, will total to 43%.

Three per-cent additional cess on 350cc bikes
Motorcycles will engine capacity equal to or larger than 350cc will attract an additional cess of 3% along with the base 28%. With this, the total taxation on 350cc bikes comes to 31%, which currently falls between 28-35%.

Electric vehicles to attract lower cess
Under the new tax structure, electric vehicles will attract lower tax of 12%, albeit the manufacturers of EVs would face an inverted duty structure with either 18% or 28% of tax. In attempt to provide refund of excess input GST, there could be a significant working capital blockage for such sectors.

Hybrid vehicles to be taxed at higher rates
Contrary to the electric vehicles, the hybrid cars will be levied 28% base tax and additional 15% cess. This could affect the sales of hybrid vehicles and discourage car makers mulling to invest in hybrid technology in India.

Commercial vehicles and auto components
Commercial vehicles are likely to be taxed at 28% GST, which means no major impact due to the new tax structure, all but vehicles for carriage of passengers with a capacity of 10 to 13 persons will attract a cess of 15%. The auto parts are also likely to be taxed at 28%, this coupled with increased tax on services by 15% to 18% will further take the after-sales cost higher.
Commenting on the GST tax rates, Gautam Khattar, Partner – Indirect Tax, PwC said, “Despite of Automobile sector being one of the most promising contributor to economic growth, it has been facing the whip of increased tax rates and multiple cesses for a substantial time now and even GST doesn’t seem to help much. The Industry doesn’t seem to relish the idea of levying the highest slab rate of 28% on all categories of vehicle regardless of the engine capacity or length. Likewise, parts and accessories for such automobile have also been placed in the same bracket of 28%.

Over the top, the government seems to have deviated from its earlier stand of introduction of Cess only on luxury goods, the current rates indicate a slab (ranging between 1% to 15%) of cess on all vehicles. Given the above rates, industry may not see much tax influence on the price fluctuation for the end customers as the taxes land up in the same bracket as under the current regime.”

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