Mumbai: Buyers of passenger vehicles in the premium segment will be key beneficiaries of the goods and services tax (GST), which will reduce the effective duty on such models. Compact cars and sub-four metre sedans are set to be less attractive, said consultants and tax experts.
An official at the Society of Indian Automobile Manufacturers (Siam) said it was still studying the implications of the GST and will not be able to comment immediately.
The GST Council on Thursday fitted all but six items in the 5%, 12%, 18% or 28% and 28% plus cess tax brackets.
Cars will be taxed at the top rate plus a cess in the range of 1% to 15%. Smalls cars will be charged 1% cess on top of 28% tax, mid-sized cars will attract 3% cess and luxury cars 15% cess on top of the peak rate.
Here are the key implications of the new rates.
Luxury cars to get cheaper: The tax on such cars is currently 52-55%. Under GST, it will come down to 42-45%. With the maximum cess on luxury cars getting capped at 15%, and with a GST rate of 28%, the maximum duty one is likely to pay is 43%, said Rajeev Pratap Singh, auto practice head at Deloitte.
Suman Jagdev, senior director at Alvarez and Marshal, a consulting firm, said, “It’s a broad-brush kind of segregation and one needs more clarity.” He called it “counter-intuitive” as ideally people who can afford luxury cars should face higher tax as compared to small car buyers.
Small cars to be more expensive: Duty on small cars, which currently is in the bracket of 25-26%, is likely to go up to 29-31%. This will include the 28% GST rate and a cess in the region of 1-3% depending on whether the car is diesel or petrol. “This also means that the era of cars in the sub four-metre segment is gone,” said Singh.
Maurti Suzuki India Ltd’s Swift Dzire, the largest selling compact sedan, is going to bear the brunt of the new duty structure. Other such models include Hyundai Xcent and Volkswagen Ameo.
Full size sedans with four metres of length such as the Honda City, Hyundai Elantra and Maruti Suzuki’s Ciaz will become cheaper. Therefore, buyers will no longer see any merit in buying a compact sedan.
“Going by the current announcement small cars are indeed going to be more expensive. This may not be great news as India is primarily a small car driven market. India is also an export base for small cars. Therefore, it’s negative from that standpoint, unless the next set of details come up,” said Jagdev.
Auto stocks reacted negatively to the GST rates.
The BSE Auto index fell 1.25% to 22,988.91 points. Shares of car market leader Maruti Suzuki fell 1.3%, Eicher Motors Ltd 2%, Mahindra & Mahindra Ltd 1% and Tata Motors Ltd 0.2%, respectively. Even two-wheeler stocks fell—Hero MotoCorp Ltd by 0.9%, Bajaj Auto Ltd 0.7%, and TVS Motor Co Ltd by fell 0.1%.