Home / Market / Mark-to-market /  GST on cars: What gets cheaper, costlier

As the new goods and services tax (GST) regime replaces the present central value added tax (CENVAT), vehicle buyers are likely to gain. We give below the reasons:

First, a look at the new GST rates. The table below shows that most vehicles will fall under the highest tax bracket of 28%, with an additional cess ranging from 1-15% based on the segment the vehicle falls under, its engine size and type (petrol or diesel) and also size of vehicle.

Broadly, the effective GST rates indicate the highest tax savings for sport utility vehicles (SUVs), where the incidence is down to 43% from the present 55.3%. It would be lower also for mid-sized cars or sedans and large cars. There would be a marginal tax savings on small cars (except diesel), two-wheelers and commercial vehicles.

Although electric vehicles would get a relaxation, hybrid vehicles will be taxed at 28% plus a 15% cess that may counter the growth of environment-friendly vehicles.

Assuming that any relief the company gets by way of tax savings is passed on to the buyer, it should make vehicles cheaper under GST. However, analysts reckon that even if there is a slight increase in prices of vehicles, the buoyant demand in the retail auto market at this juncture is unlikely to dampen sales.

That said, an exact comparison is tough, given the numerous heads of taxes under the present CENVAT system.

ALSO READ: What’s in GST for car buyers?

For instance, the present system has a web of taxes at various points in the supply chain, such as central sales tax, national calamity contingency duty (NCCD), luxury tax on large cars, infrastructure cess on cars, and octroi in some states.

In addition, some taxes levied cannot be set off against prior taxes paid on inputs in the value chain (input tax credit), which at times inflates the vehicle cost.

A single GST that subsumes the battery of taxes in the present CENVAT regime will remove the cascading effect of taxes on the final price of the vehicle.

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