Prices of small cars likely to increase as GST comes into effect
Small cars will be slightly expensive under the proposed goods and services tax (GST) regime, with a peak tax rate of 28 per cent. SUVs will attract an additional cess.
Under the current taxation system, small cars (with a length of below four metres and an engine capacity of up to 1,200 cc for petrol cars and up to 1,500 cc for diesel cars) attract an excise duty of 12.5 per cent. An incidence of around 14 per cent comes on account of VAT and certain levies, taking the total to 27 per cent. Under the GST, the tax will be 28 per cent.
In the past decade or so, India has grown to be a predominantly small car market and the taxation structure, especially excise duty, had a role in promoting the same.
The rates were released only late at night, so automobile makers could not clarify how the prices of their products would change.
Hyundai, the country’s second biggest car maker, said it expected small cars to turn expensive. “The proposed GST is understood to have three slabs and a cess instead of the existing four-tier excise duty structure. Given the information available to us, it seems that entry level cars could see an escalation in taxes, leading to certain increase in prices,” said Rakesh Srivastava, director (sales & marketing) at Hyundai.
Srivastava said a higher tax would impact India’s position as a small car manufacturing and export hub.
However, Maruti Suzuki, the biggest player in the domestic market, said there was lack of clarity on the rates. “Since we do not know the rate of cess, the calculation cannot be done,” said Chairman R C Bhargava.
The existing four-tier excise duty classification is based on two aspects — the length of the vehicle and the engine capacity (different for petrol and diesel cars). The GST regime is supposed to have only three layers of cess for cars, while having the uniform peak duty of 28 per cent.
There is no clarity on the size of bigger cars, which will fall under the last two cess slabs. But there could be a minor decline in prices of large luxury cars and SUVs, which will draw a cess of 15 per cent. The total tax under GST inclusive of cess on such vehicles may be 43 per cent, against existing incidence of 41 to 45 per cent.