News & Updates Back

GST Impact : How car prices will be affected? [May 23, 2017]

The government has now given more clarity on the new Goods & Services Tax (GST) structure after releasing the rates for 98 categories of goods, including those for the automobile sector. Under GST, most vehicle categories will come under a standard 28 percent tax rate, along with a provision to separately levy an additional variable cess on any vehicle category.

“The rates are as per the expectations of the industry and almost all segments of the industry have benefited by way of a reduced overall tax burden in varying degree,” said Vinod Dasari, SIAM president.

The sub-four-metre small car segment will now attract a 1 percent cess for petrol models (less than 1,200cc) and 3 percent for diesel cars. This changes their effective GST rates to 29 percent and 31 percent, respectively, which is a slight increase from before and consumers might see a minor price increase in this segment. Taxation for mid-size cars and SUVs (length more than four metres, engines smaller than 1,500cc) will remain more or less unchanged at net rate of 43 percent. There is good news, however, for consumers in the market for large cars and SUVs (engines larger than 1,500cc) as there is now considerable reduction in indirect taxes from an earlier 50 percent to now 43 percent (GST of 28 percent plus cess of 15 percent).

In what seems like a bid to encourage the sale of electric vehicles, GST has been kept in a lower tax band of 12 percent; this includes two-, three- and four-wheelers as well. Surprisingly though, hybrid vehicles have been kept in the highest rate bracket there is, of 28 percent with an additional 15 percent cess (total of 43 percent), thus attracting the same amount of tax as a luxury car. This is especially significant since the government has been pushing to popularise clean and efficient vehicle technologies. This also seems like a setback for manufacturers like Toyota, Lexus and Hyundai, which have already committed significant investments towards hybrid technology.

"We were expecting some positive inputs towards hybrid vehicles but with the absence of that, and with the current taxation structure, there could be big challenges towards bringing in feasible hybrid technology. Luxury cars will definitely become cheaper by quite a bit. The impact on small cars will be negligible," Rakesh Srivastava, director (sales & marketing), Hyundai Motor India, told Autocar India.

Ownership costs of vehicles, too, are expected to rise, with auto parts now falling under the 28 percent tax slab of GST. This, along with 3 percent increase in the tax rate for services which now in total stands at 18 percent, could mean that vehicle servicing will cost more.

GST is expected to replace as many as 17 indirect central and state tax levies. The government has committed towards a deadline of July 1 for its rollout.