CHENNAI: The auto industry seems to have accepted what the Goods and Services Tax (GST) is set to take, with most experts and industry players pointing out that despite a few small disappointments, the tax will work out as a net positive for the sector.
According to Finance Minister Arun Jailtey’s briefing, all non-electric cars and two-wheelers will be taxed at a base rate of 28 per cent. However, all non-electric cars will be taxed an additional cess of 1-15 per cent depending on engine size and length. Small cars less than four metres in length and with petrol engine of up to 1,200 cc will attract one per cent cess. Small diesel cars with engine of less than 1,500 cc will be charged three per cent cess and mid-sized cars, SUVs and luxury cars will all attract 15 per cent cess. Two-wheelers with engines bigger than 350 cc will also pay an additional cess of three per cent.
Enough for customers and manufacturers
The rates have been welcomed, with industry players saying that it has enough positives for all stakeholders. According to sector experts, the tax rates for different segments work out lower, even for small cars that seem like they will see a slightly higher incidence at first glance. The removal of the Central Sales Tax component altogether, combined with cost savings from production and value chain efficiency gains will help.
“There are a lot of benefits coming from this, not least of which is the removal of the two per cent CST component. Manufacturers can also gain from being able to claim input credits for everything they pay for. GST is likely to bring down overall tax costs and the whole capital allocation in terms of tax will go down,” pointed out Abdul Majeed, auto expert and partner at PricewaterhouseCoopers (PwC).
Customers are already reaping the benefits and most manufacturers with large cars have announced that they will be passing on the benefits to customers. Over the last week, Ford, Mercedes Benz, Audi, BMW and Isuzu announced price-cuts for select models ranging to as much as a few lakhs for luwxury cars. For two-wheelers, the new tax impact is largely revenue-neutral. The increase in transportation and production across the board is also set to give a strong boost to the commercial vehicles segment, as India becomes a single market.
The wealth of positives has resulted in most of the sector reacting positively. The Society of Indian Automobile Manufacturers (SIAM) says that the rates are in line with expectations. “... almost all segments of the industry have benefited by way of a reduced overall tax burden in varying degrees,” pointed out SIAM President Vinod Dasari, “This will pave the way for stimulating demand and strengthening the automotive market in the country…”
Roland Folger, managing director, Mercedes Benz India, added that the GST would be a large positive. “We are confident that post GST implementation; there will be growth momentum in the luxury car industry,” his statement said, to which he later added in an interview with the Express, that one of the only concerns was fear of a delay in implementation. “We just do not want them to delay the rollout, because that would be frustrating,” he said.
Confusion on hybrid rates
While reaction has mostly been positive on the slabs, many are confused about one aspect -- tax slab for hybrids. “Differential GST for electric vehicles will help electric mobility to gain momentum in India. We would have liked to see a similar differential duty on hybrid vehicles to continue. Government has always encouraged environmentally friendly technologies and with the current focus on reducing emissions of greenhouse gases and reducing carbon footprint one would have expected the lower taxation to continue on such vehicles in a technology agnostic manner,” pointed out Dasari, and others agree. Hybrids are to be taxed at 28 per cent plus the top cess of 15 per cent.
“We expected the rates for hybrids to be lower, especially since fully electric vehicles will see GST of only 12 per cent,” said Majeed. “However, the government might want to skip over the hybrid step in the evolution of the Indian auto market, just like they are planning with the BS-VI to BS-VI jump,” he added.