GST Impact on Car Prices in India�

As we all know, the Indian economy is going to witness a drastic change in the form of the Goods and Services Tax (GST) from 1 July 2017. And, all the aspects which any how relate to the taxation will face the impact of GST implementation. To clarify the same, the GST Council has rolled out a list of more than 1200 items on May 18, which were categorized into five segments, attracting different tax rates including 0%, 5%, 12%, 18% and 28%. In this segmentation, a lot of

Under GST regime, a lot of important items will become inexpensive. While, automobile sector will possibly face mixed effects, the small car owners are expected to encounter disappointment with tax rates. Under this new tax structure, the standard tax rate for the car will be 28% and some additional cess. The rate of the cess and the classification of vehicles under GST has not been disclosed yet by the GST council.

Addressing about the change in taxation, Sarika Goel, Tax Partner, EY India, said “While the GST Council debated GST rates for vehicles, no consensus was reached on the same during today’s meeting. While the taxation of luxury vehicles is widely being expected at 28% plus a cess of 15%, what is interesting to note, that as per the media reports, the Council seems to be considering levy of a cess even on small cars in addition to GST at 28%, albeit at a much lower rate compared to luxury vehicles. Definition of what would classify as small cars and luxury cars respectively is also awaited – it appears likely that the same would be based on engine capacity, length etc rather than the retail price. The FM, during the press conference post today’s meeting, mentioned industrial intermediates being taxed at 18% GST; however, it is not yet clear whether auto components would fall under this category.”

Under the current tax scenerio, the levied tax on small cars (less than 4 metre in length, petrol cars below 1,200 cc engine and diesel car under 1,500 cc powertrain) are 12.5 % and with the addition of 12.5% to 14.5% of VAT on it, the subsume rate lies between 25% to 27.5%.

While, after GST implementation, the new tax rate will increase the total levied tax more than 29%, which in result will increase the prices of small cars. This increment in the country’s most price-sensitive automotive segment could have a negative effect on the customers buying sentiment and thus, it will affect the manufacturers adversely.

Like Honda City and the Hyundai Creta (Mid-segment cars) are likely to not being affected by the GST rates as the current imposed tax on these vehicles are nearabout 43 percent. And, the flat 28% tax with an addition of 15% cess will bring the total to the same 43%, means no change in rates. Though, we might consider a drop in this segment prices, owing to the cess rates in GST which are not confirmed yet.

Though, there could be a good news for the people pondering to purchase luxury cars or SUVs. As,