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What does GST mean for Car Buyers?

Feb 22, 2017

The Goods and Services Tax (GST) has been the buzzword in the country for quite some time now. For the automotive sector, the GST is expected to bring down the price of small cars, which in turn, will hopefully help in the growth of the sector as a whole. Therefore, car buyers can expect a fair deal.

To comprehend the possible profits that a prospective car buyer might gain, let us see what the GST bill is expected to do. GST will cause the costs of logistics to reduce, thereby easing business processes. Luxury cars may have some benefits, which might involve a tax diminution of about 5 percentage. But, this will not be appropriate for luxury vehicles that are fully imported as completely built-up (CBU) units.

Benefits of GST for Car Buyers

In a coherent term, the GST represents a single tax that is to be imposed on all goods and services in the country. GST will replace all forms of indirect taxes that consumers are paying right now. Let us identify the positives of the GST Law that will stand relevant for car buyers.

Decline in vehicle prices

With GST implementation, taxes such as excise duty, sales tax, road and registration tax will all be subsumed into one. Vehicle prices are therefore expected to be more affordable and thus, will create demand. The GST implementation is also expected to eliminate the impact of multiplicity of taxes on the cost of goods and services. Given the standard excise duty of 12.5 percentage and VAT of 12.5-15 percentage, CST (Central Sales Tax) and entry taxes take the effective tax rate up to 26-30 percentage in the current system. With GST, the effective tax rate is expected to drop to a standard rate of 17-18 percentage.

In the passenger vehicles industry, mid-size segment can be expected to be the largest beneficiary with an estimated duty decline of nearly 20 percentage. The small cars segment can see a price benefit of about 10 percentage, while luxury cars and utility vehicles segment can get a benefit of up to 5 percentage. However, customs duty is amongst the taxes that will be left out of the GST. Therefore, prices of vehicles brought in as imports or as CBU units is unlikely to change.

Read more on how the proposed GST rate will impact car prices

Change in price structures

GST implementation is probable to result in a change in the price structures. Within the standard tax rate, the price gap is expected to contract. Moreover, apart from the change in buying preferences due to the lessening gap between small cars and the mid-size segment, GST implementation can compel manufacturers to restructure their strategies especially in the excise duty segment.

Read: 50 Upcoming New Cars in India

“There is a difference between cars and luxury cars. Cars will come under 28 percentage, but luxury car owners can afford to pay a little more,” said the Finance Minister, Arun Jaitley when asked about the taxation structure on automobiles.

Uniform price

GST will permit carmakers to maintain a uniform ex-showroom price of their vehicles across the country. Vehicles are usually priced differently across different states. The consistency in prices will relieve the concern among car buyers over deciding on a place to buy the vehicle.

The overall consent is anticipated to reduce and bring a lot more efficiency in operations. The whole country will be treated as a single market and will add to operational efficiencies. The usual expected deadlock at check post will get eliminated.

Conclusion

If the deadline of April 1, 2017 is missed, the pain will increase for automobile industry and for those who will be waiting to buy a car. The more the delay, the greater the pain. The industry will try and bring its gimmicks and you may expect discounts like you have never seen before in the next few months. For a long time, discounts have been a 12 month phenomenon and they will stay even after GST is implemented.

After the initial elation of GST dies down, the automobile industry will wake up to the reality that a desolate festive season is ahead of them. For consumers, this is the time to sit tight and wait. It should, be worth it.

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