With Goods and Services Tax (GST), the biggest-ever tax reform in India, set for rollout at the stroke of midnight of June 31-July 1, the automobile industry will have to contend with a new market dynamic.
Under GST, there will be four main vehicle categories – small cars, large cars, electric vehicles and hybrids. Most vehicle categories will fall under a standard 28 percent tax rate, along with a provision to separately levy an additional variable cess on any category.
SUVs to be biggest gainers
The automobile sector is unlikely to see any major dip in demand, considering there has been a reduction in taxation across the board with the drop ranging from 2.25 to 12 percent, depending on the vehicle category.
The biggest gainers will be SUVs which see a sharp 12 percent reduction in tax from 55 percent to 43 percent. Accounting a fourth of all passenger vehicle sales in India, and having notched near-30 percent year-on-year growth in FY2017 (761,997 units), FY2018 should see demand for SUVs surge even more.
Hybrids, surprisingly, have been kept in the highest rate bracket of 28 percent with an additional 15 percent cess (total of 43 percent), thus attracting the same amount of tax as a large car.But in a move that highlights the government’s push towards electric vehicles, GST has been kept in a tax band of 12 percent, which is 16 percent lower than any other vehicle category.
However, it still remains to be seen whether passenger vehicle manufacturers will pass on the entire benefit of this overall drop in taxation rate to customers. The Autocar India graphic depicted below details the GST impact on various vehicle categories.
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