New Delhi: If you are looking to buy a small car, you may have to shell out some extra money once GST is implemented because of an additional cess that will be levied on this category of vehicles under the new tax system.
Those eyeing larger sedans, sports utility vehicles and luxury cars, however, may benefit from some rationalisation in taxes, and therefore in vehicle prices, because even after a cess of 15 per cent, the total levy will be less than the tax being imposed on such models now.
Unlike the multiple incidence of taxation levied currently, the new tax structure will see a uniform rate of 28 per cent on cars, said a person with knowledge of the decisions made at the GST Council meeting on Thursday. An additional cess of 1 per cent and 3 per cent is being discussed for levy on small petrol and diesel cars, respectively.
Bigger cars and luxury vehicles are expected to attract a cess of 15 per cent over the base rate of 28 per cent. The current levies range between 25 per cent and 55 per cent and the additional cess is to recover revenue loss due to implementation of GST.
Industry experts hold levy of cess in the entry segment could result in challenges of developing the country as a manufacturing base for small cars.
As per the existing tax structure, small cars attract an excise duty of 12.5 per cent and VAT of another 12.5-14.5 per cent. The proposed rate of 28 per cent, along with the cess of 1-3 per cent, could shoot up total levies to 29-31 per cent, raising prices in a price-sensitive category.
“Under the proposed GST structure, the small car segment could see escalation in taxes. The entrysegment is price sensitive and any such escalation in taxes could pose challenges in India developing as a manufacturing and export hub for small cars,” said Rakesh Srivastava, director (marketing & sales) at Hyundai Motor India.
“What is interesting to note, that as per media reports, the council seems to be considering levy of a cess even on small cars in addition to GST at 28 per cent, albeit at a much lower rate compared to luxury vehicles,” said Sarika Goel, tax partner at EY India. “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.”
Maruti Suzuki chairman RC Bhargava said more clarity on impact of GST on vehicle prices would emerge only once the final rates are announced for different categories of vehicles. The new rates will likely end up lowering prices of vehicles at the more premium end of the market.
For SUVs and cars fitted with 1500cc and larger engines, the current incidence of taxation is 41.5 per cent to 44.5 per cent — 27-30 per cent of central excise and the rest state VAT.
An executive with a leading luxury car maker, who did not wish to be identified, put the total tax levied on luxury cars at around 55 per cent. “If the 28 per cent tax rate and an additional cess of 15 per cent is levied … then vehicle prices technically would come down. But we have to wait for the final GST rates, the decision on cess, both at the central and at the state level.”
VG Ramakrishnan, managing partner at consultancy firm Avanteum Advisors, said: “What needs to be looked into is also the tax structure proposed for electric and hybrid vehicles given the government’s focus on green mobility solutions.”
The industry is also awaiting clarity on the levies of taxes on auto components. The finance minister, during a press conference post Thursday’s meeting, mentioned industrial intermediates would be taxed at 18 per cent. The industry is awaiting details on whether auto components would fall under this category.
Key decisions taken till date by the GST Council:
-Sep 23, 2016 Timetable finalised to work out rates & legislative agenda
-Oct 18, 2016 Centre proposes 4-slab structure — 6 per cent, 12 per cent, 18 per cent, 28 per cent, & 4 per cent rate for precious metals
-Nov 3-4, 2016 Agreement on 4-slab structure — 5 per cent, 12 per cent, 18 per cent, 28 per cent, plus cess on tobacco and luxury goods
-Dec 22-23, 2016 Draft C-GST and S-GST finalised; Compensation law okayed
-Jan 16, 2017 Division of tax administration between states & the Centre finalised
-May 18-19, 2017 Takes up fitment of goods & services in rate slabs
-Mar 31, ’17 Four sets of rules approved
-Mar 16, 2017 S-GST, UT-GST legislations cleared; tax rate capped at 40 per cent, a set of rules approved
-Mar 4, 2017 5 per cent rate fixed for small hotels 1 per cent for ecomm; C-GST, I-GST legislations cleared
-Feb 18, 2017 Draft compensation law approved