GST will be beneficial for the people in the market for small and affordable family cars like Alto, i10, Nano, Datsun go as a minimum cess of 1% has been charged over and above the GST rate of 28%. Motorcycles which have an engine of greater than 350CC like KTM Duke 390 or Harley etc would be charged GST at the rate of 28% and an additional 3% cess would be imposed.
Presently, there are a lot of free services/warranties on offer by the car makers because of the focused idea of the business. These services are not taxed under present tax laws. Under GST, these free services will also attract tax.
Prices of all small cars in the same bracket as Alto, Amaze, Dzire, i20 Elite, to name a few, will see a minimum drop of Rs 6,500 going up to at least 15,000. This is because, after July 1, the GST rate will be 29 percent from the current 31.4 percent slapped on such cars.
Mid-size cars will be cheaper as their rates will be pulled down by 3.6 percent. Sedans like Honda City, Hyundai Verna, Ciaz, and Vento will see a minimum price cut of Rs 30,000.
Luxury car brands like Mercedes-Benz, BMW, Audi and Jaguar Land Rover announced price cuts in the Rs 1.25 lakh going up to Rs 7 lakh as the rate reduction on them is a stupendous 8.8 percent. SUVs will see the highest drop in prices. Under GST, SUVs are charged at 43 percent, a reduction of 12.3 percent compared to 55.3 percent charged presently.
GST is absorbing a total of five taxes and levies -- excise, NCCD, infra cess, Central Sales Tax and Value added tax -- which is pulling down the final effective tax rate in almost all of the cases. These charges are the ones that make up the ex-showroom price of a vehicle. Value-added tax (VAT) varies from state to state and, therefore, the price of the vehicle will not remain uniform across the country. Other charges like road tax, registration cost, insurance and perhaps logistics charges are not subsumed in GST and will not be affected. These charges add up to make up the final on-road price that the buyer has to pay to the dealer.
Additional business overheads: Reducing operations cost
With the elimination of CST, companies need not maintain warehouses and C&F agents at multiple state points. The warehousing infrastructure could be clubbed and lower the operating costs in the supply chain.
Further with the inclusion of business overheads such as advertising, business promotion under Input tax credit, the operation cost would be further reduced.
Green Vehicles Levied
A 15% cess above the base GST rate of 28% on green vehicles is questionable as it is far above the existing 30.3% rate. While the officials have claimed that smaller hybrid vehicles are ruled out from additional cess of 15%.
Burden on Demo Cars Due to Heavy Taxation
GST demands a high tax rate on the demo cars. Currently, these vehicles were taxed at 0.5% while they are sold in the used car market after a year or so. With GST, tax rates of 28% and 43% of the sale value would be levied.
Operating Cost Decreased
With the elimination of CST, companies need not maintain warehouses and C&F agents at multiple state points. The warehousing infrastructure could be clubbed and lower the operating costs in the supply chain. Further with the inclusion of business overheads such as advertising, business promotion under Input tax credit, the operation cost would be further reduced.
Affect on Venture Capital
This would be a huge concern for the dealers as the supply is taxable in GST. On the date of vehicle transfer, GST would be paid and it would lock the capital. Now the dealer would be required to pay GST on the same day as he receives the advance and it will hurt their outflow. Another cash lock would be when the auto manufacturers would offer free services/warranties as sales’ benefit to their customers (at the time of sale of vehicles). They would pre-pay GST on the issue date of the coupon while customers would be using the service at a later date.
From above, We can easily conclude that Implementation of GST is going to decrease the cost of manufacturing of cars due to the subsuming of different taxes charged currently. Under GST, the taxes would be charged on consumption state rather than the origin state, which would give a lift to the development rate of the car business.