GST Rates: If you're buying a car or bike, read this first

The GST Council, in its 14th meeting has finalised the GST across all categories of goods including automobiles. In addition to the base rate, the Government has also proposed to levy a cess of 1% and 3% on small cars with petrol and diesel engines, respectively.

The base GST rates for the automobile segment have been set at 28%, which is broadly in line with overall indirect tax rates at present.

“The rates are as per the expectations of the industry and almost all segments of the industry have benefitted by way of a reduced overall tax burden in varying degree. This will pave the way for stimulating demand and strengthening the automotive market in the country, paving the way for meeting the vision laid down in the Automotive Mission Plan 2016-26”, said Vinod Dasari, President, SIAM.

"Considering GST will subsume infrastructure-cess currently levied on domestic passenger vehicle industry, proposed tax rate for small car is likely to be price neutral. Bigger sedans (engine size > 1,500cc and length >4,000 cm) and SUVs (engine size > 1,500cc and ground clearance > 170mm) may see lower taxation and eventually reduction in vehicle prices, despite 15% cess above the base GST rate of 28%," ICRA said.

Vaibhav Agrawal, Head of Research and ARQ, Angel Broking said, "While GST council has announced 28% GST on passenger vehicles, there is yet no clarity if there will be different tax slabs for different sized cars. Assuming 28% tax rate, small cars will become expensive by about 2-3% while luxury cars will become cheaper by the same extent which could be counter intuitive."

Subrata Ray, Senior Group Vice President – ICRA Limited, said, "the prices of relatively price sensitive small cars may increase marginally post GST, while OEMs would pass on the benefit of lower taxes on Bigger Vehicles and SUVs to customers."

He further mentioned that GST rates are likely to be almost neutral for the Commercial Vehicle and Two Wheeler and would marginally increase for Three Wheelers as it didn’t attract additional NCCD earlier.

There will also be an additional cess levied on certain automobile categories, which could prove to be costly for the industry as well as people who are looking to buy the car after the implementation of GST.

Small cars could take a hit as the GST Council has decided to levy an additional cess of 1% on small petrol cars and 3% on small diesel cars, apart from the 28% GST rate.

Luxury cars will get much more costlier as they face an additional 15% cess, besides the 28% GST.

In addition, bikes with an engine capacity of over 350cc will be seen as luxury goods and see a new cess of 3%.

The additional cess the government will impose as it tried to recover the revenue loss due to implementation of GST.

This is expected to have a big impact on the automobile industry and could result in price hikes, which could have an impact on sales in the near term. The most affected would be small cars as these GST rates are a significant hike in taxes in comparison to the taxation policy they are following currently.

Currently, small cars have to pay an excise duty of 12.5% and Value Added Tax (VAT) of another 12.5-14.5%, according to an Economic Times report.

So does this mean bad news for the small car segment?

According to one automobile analyst we spoke on the condition of anonymity said that he did not think that this will have much of an impact on the demand for small cars. “A few percent increase in the tax will not have much difference in small car sales. Customers might be in a little disadvantage as the small car prices will increase by a bit, but I don't think that will impact their buying decision.”

He further says that in terms of the additional cess, he says that will not have much of an impact as some of the vehicles have been already paying Green Cess. In fact, prices of mid-segment cars such as SUVs and sedans will become cheaper, he said.

For bikes, he said that Royal Enfield sales will not be impacted much as the highest selling bikes of the company are the 350cc. It will only be the Classic 500cc and some other which are over 350cc engines which will incur the additional cess.

When asked whether he expects to see higher sales in rest of May and June as result of GST implementation in July, he says that a small increase in the prices are not going to see much of an impact on demand.

Another automobile analyst too said that the GST rates of 28% were expected by the automobile industry and that even with the additional cess it is very close to the current taxation rates.

“Even for small cars the GST rate will come to the similar to the tax rates now. There may be a difference of a 1-2% but this will not have any significant impact on demand for the automobile industry,” he said.

"If we assume that the current tax slabs will not undergo any revision, we don't see any material difference on companies as these prices will be passed on to the consumers and demand will not be hit severely by 2-3% price increase," Agrawal of Angel Broking said.

This article was first published in Zeebiz.com