The entire country is now gearing up towards the implementation of Goods and Services Tax (GST) with the GST Council already taking up the responsibility for fixing rates of more than 1200 items on 18th May.
While most of the products are set to get cheaper, small car manufacturers and buyers have no such rejoice. One of the most sensitive segments of the automobile industry faces an increase in taxation, as, as per the new tax structure the cars falling under small car segment will be subjected to a standard 28% tax rate followed by an additional cess. But yet, the classification of the vehicles and the cess bracket under which they fall has not yet been disclosed by the GST Council.
Speaking 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.”
With the existing tax structure, small cars which are less than 4 m in length having either petrol engines with less than 1200 cc displacement or diesel engines with less than 1500 cc displacement are taxed an excise duty of 12.5% and with additional 12.5% to 14.5% VAT and other levies, which change from state to state, the total tax rate goes up till 27.5%.
With the new GST, small cars could get taxed upto 29% which will result in their price increase.
Mid-size cars (Sedans and SUVs)
Mid-size cars such as Hyundai Verna, Creta, Skoda Rapid etc are most likely to remain unaffected from the GST debacle since the existing taxation is around 43% and the implementation of GST tax rate of 28% and an additional cess of 15% will total up to 43% resulting in zero tax difference. We can expect some manufacturers to slightly reduce the prices of their cars in this segment to woo more buyers.
GST is a happy news for both buyers and manufacturers from this segment as luxury cars segment benefits the maximum out of GST. Vehicles coming under this category are currently taxed at around 55% and with the implementation of GST that is expected to fall to around 43% which will give a huge boost to the segment.
Still some of the nitty gritties of the GST implementation is not clear yet, along with concessions and rebates for hybrid/electric vehicles and the same is awaited from the Government.
[Source: Financial Express]