GST a win-win for auto industry; should you delay your car buying plan?
After much haggling and a near 10-year delay, the "revolutionary" Goods and Services Tax (GST) Bill was passed in the upper house of Parliament on Wednesday.
- Aug 4, 2016,
- Updated Aug 4, 2016 7:30 PM IST
Currently, there are four excise tax slabs for cars in India:
The other major chunk of taxation for cars is the value added tax (VAT) that ranges between 12-14.5 per cent across states. Add the various cesses in the country and even for a small car, a customer pays upwards of 25 per cent on tax and cess alone. From there it keeps going up to near 40 per cent for a mid-size sedan like Honda City, 45 per cent for an executive sedan like Toyota Corolla and 48 per cent for burly SUV like a Pajero.
Once, GST comes into force, the taxation on cars, any car for that matter, will see a drastic reduction. For now, the talk is there would be three slabs of taxation in GST-merit, standard and de-merit.
Merit will likely be a 17-18 per cent tax rate and have products that the government wants to propagate and incentivize. In the automobile industry that should include two-wheelers and small cars. That would mean a reduction of at least 7-8 per cent tax on cars like Maruti Alto, Renault Kwid or Hyundai i20.
Standard is likely to be a 20 per cent tax slab and will apply to a majority of the products in the country. All sedans, saloons and other entry-level SUVs like Scorpio and Creta will fall under this category. This category will actually see a steeper tax reduction of nearly 20-28 per cent. No wonder, Mahindra and Mahindra chairman Anand Mahindra is a very happy man today.
The de-merit category will probably be a relatively steep 40 per cent slab that will apply only to luxury and imported cars. Most of them like a Mercedes C Class or a BMW 5 series sedans are taxed at near 50 per cent today anyway. It may sound ironical, but luxury car makers will actually be happy. Even for them, it would be a 7-8 per cent tax reduction.
In all these cases, given the supremely competitive nature of the industry, the benefit will be passed on to the consumer. So we are potentially looking at a price reduction for cars anywhere between 7 and 25 per cent depending on what category the car belongs to.
The question to be asked now is, should you buy a car now? Or in the next 8 months till the time GST is applicable on April 1, 2017. If you do so, not only do you miss out on the reduced prices of next fiscal, your car also stands the risk of taking a hit on resale value. It is a no brainer. It makes absolutely no sense to buy a car, any car, now. Unless, you absolutely have to.
The industry for now is happy and rightly so. Battered by the green lobby and threatened by a number of anti-pollution measures, this is the first good news for them in a long time. Yet, once the dust settles down, they would wake up to the reality of declining sales in the rest of this fiscal. It will be worse, if the Centre and State governments are not able to tie the loose ends quickly. Wednesday only saw the passage of the enabling provision for the Bill and a lot of work still needs to be done.
If the deadline of April 1, 2017 is missed, the pain would increase for automobile industry and for those who would be waiting to buy a car. The more the delay, the greater the pain. The industry would try and bring its gimmicks and you may expect discounts like you have never seen before in the next few months. But discounts have for long been a 12 month phenomenon and they will stay even after GST is implemented.
After the initial euphoria of GST dies down, the automobile industry will wake up to the reality that a bleak festive season is ahead of them. For consumers, this is the time to sit tight and wait. It should, be worth it.
Currently, there are four excise tax slabs for cars in India:
The other major chunk of taxation for cars is the value added tax (VAT) that ranges between 12-14.5 per cent across states. Add the various cesses in the country and even for a small car, a customer pays upwards of 25 per cent on tax and cess alone. From there it keeps going up to near 40 per cent for a mid-size sedan like Honda City, 45 per cent for an executive sedan like Toyota Corolla and 48 per cent for burly SUV like a Pajero.
Once, GST comes into force, the taxation on cars, any car for that matter, will see a drastic reduction. For now, the talk is there would be three slabs of taxation in GST-merit, standard and de-merit.
Merit will likely be a 17-18 per cent tax rate and have products that the government wants to propagate and incentivize. In the automobile industry that should include two-wheelers and small cars. That would mean a reduction of at least 7-8 per cent tax on cars like Maruti Alto, Renault Kwid or Hyundai i20.
Standard is likely to be a 20 per cent tax slab and will apply to a majority of the products in the country. All sedans, saloons and other entry-level SUVs like Scorpio and Creta will fall under this category. This category will actually see a steeper tax reduction of nearly 20-28 per cent. No wonder, Mahindra and Mahindra chairman Anand Mahindra is a very happy man today.
The de-merit category will probably be a relatively steep 40 per cent slab that will apply only to luxury and imported cars. Most of them like a Mercedes C Class or a BMW 5 series sedans are taxed at near 50 per cent today anyway. It may sound ironical, but luxury car makers will actually be happy. Even for them, it would be a 7-8 per cent tax reduction.
In all these cases, given the supremely competitive nature of the industry, the benefit will be passed on to the consumer. So we are potentially looking at a price reduction for cars anywhere between 7 and 25 per cent depending on what category the car belongs to.
The question to be asked now is, should you buy a car now? Or in the next 8 months till the time GST is applicable on April 1, 2017. If you do so, not only do you miss out on the reduced prices of next fiscal, your car also stands the risk of taking a hit on resale value. It is a no brainer. It makes absolutely no sense to buy a car, any car, now. Unless, you absolutely have to.
The industry for now is happy and rightly so. Battered by the green lobby and threatened by a number of anti-pollution measures, this is the first good news for them in a long time. Yet, once the dust settles down, they would wake up to the reality of declining sales in the rest of this fiscal. It will be worse, if the Centre and State governments are not able to tie the loose ends quickly. Wednesday only saw the passage of the enabling provision for the Bill and a lot of work still needs to be done.
If the deadline of April 1, 2017 is missed, the pain would increase for automobile industry and for those who would be waiting to buy a car. The more the delay, the greater the pain. The industry would try and bring its gimmicks and you may expect discounts like you have never seen before in the next few months. But discounts have for long been a 12 month phenomenon and they will stay even after GST is implemented.
After the initial euphoria of GST dies down, the automobile industry will wake up to the reality that a bleak festive season is ahead of them. For consumers, this is the time to sit tight and wait. It should, be worth it.