GST: SUVs and luxury cars build up but others don’t lose . . . much
by Nilesh Wadhwa May Nineteen, two thousand seventeen
The influence of Goods & Services Tax (GST) in the automotive sector is getting clearer now. Earlier today, the GST Council immobilized the final rates for over 1,200 items including automobiles. As a single indirect tax for the entire nation, GST essentially is only one tax from the manufacturer through to the consumer, making the taxation process translucent and India into one unified common market.
Contrary to industry expectations, there are no hiccups; instead, the overall influence on the automotive sector seems to be on the positive side with the major gainer being the SUV and luxury car segments. Speaking to Autocar Professional, Binaifer F Jehani, director, Industry & Customised Research, CRISIL Research, said: «We were expecting GST to benefit mainly the consumer goods segment but three segments have seen the maximum benefit – soaps, hair oils and remarkably SUVs. We expect benefits to the SUV segment in the range of 5% which will further improve sales of SUVs in the passenger vehicle segment.»
The SUV segment, which has seen sexy growth of 29.91% in FY2017 , is presently subjected to a strong tax structure of around fifty five percent – SUVs and large cars with engines fatter than 1500cc. Now, implementation of GST will effectively reduce this to forty three percent – twenty eight percent GST plus fifteen percent cess. Clearly, this will act as a thick fillip to SUV as well as luxury car sales.
Marginal influence on Passenger Vehicles
With two-wheelers, three-wheelers and petite cars set to see a marginal increase of 1-2% tax (28% GST + 1-3% Cess), the influence is expected to be negligible. Effect on consumer sentiments is expected to be negligible as dealers and OEMs usually tend to suggest benefits to the consumer in the range of 1-2 percent.
Negligible influence on Commercial Vehicle sector
Hybrids attract highest rate slab
Also, hybrid vehicles are proposed to be taxed at the highest GST rate bracket of twenty eight percent plus a cess of fifteen percent. This could act as a dampener for OEMs proposing to invest in hybrid technology and adversely influence sale of such vehicles, unless a subsidy is separately given by the government to offset such tax incidence.
Components taxed at twenty eight percent
SIAM welcomes fresh GST rates
«The government has done well to ensure stability in taxation while at the same time moderating the taxes wherever they were too high,» he added. «Differential GST for electrical vehicles will also help electrical mobility to build up momentum in India. We would have liked to see a similar differential duty on hybrid vehicles to proceed.”
«The government has encouraged environmentally friendly technologies and with the current concentrate on reducing emissions of greenhouse gases and reducing carbon footprint, one would have expected the lower taxation to proceed on such vehicles in a technology agnostic manner,” said the SIAM president.
«The inclusion of 10-13-seater vehicles used mainly for public transport in the same tax bracket as luxury cars with a fifteen percent cess is also unexpected and may merit a review,» concluded Dasari.