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Small diesel car prices to go up after GST enforcement

The Hindu |

22 May 2017

The impact may work out to be an increase of 1.6% on the on-road price, due to a cess of 3%

Small and medium-sized diesel cars would cost more after the implementation of Good & Service Tax (GST) from July 1, analysts said.

Both these segments of the industry would have a negative impact while other segments stand to gain.

Small cars account for 61% of the passenger car market while small diesel cars approximately make up 20% to 25% of all small cars sold in India.

The GST slab rates indicate that while small and mid-sized diesel cars will see a price increase of around 2%, buyers of petrol small cars will either not gain anything or get a marginal benefit of 1%.

3% cess

For small petrol cars the tax rate in GST regime would be 28% plus cess 1% while for small diesel cars the cess is 3%.

“Except for small diesel cars and mid-sized ones, GST rates are largely neutral from on-road prices. For small diesel cars, the increase is 1.6% in its on-road price, whereas for mid-size cars increase is 2.1%,” Jinesh Gandhi, auto analyst, Motilal Oswal Securities Ltd said.

Amit Sarkar, partner & head, Indirect Tax, BDO India said: “Small cars currently attract excise duty at 12.5% and VAT at 12.5-14.5%. The proposed rate of 28%, along with the compensation cess of 1-3%, could inflate total levies to 29-31% as against 27-29% presently.”

Subrata Ray, senior group VP, ICRA Limited, in a note to clients, said that the prices of small cars may increase marginally after the implementation of GST.

No clarity

Vaibhav Agrawal, head of research, Angel Broking said, “While GST Council has announced 28% for passenger vehicles, there is yet no clarity if there will be different tax slabs for different sized cars.”

He said assuming that GST rate will remain at 28%, small cars will become expensive by about 2-3% while luxury cars will become cheaper by the same extent ‘which could be counter intuitive.”

Sport utility vehicles and luxury cars are expected to be cheaper by 12.3 and 6 percentage points respectively, according to an analysis by Crisil research. However, Motilal Oswal Securities Ltd. analysts estimate that SUVs like Scorpio and XUV500 will be cheaper by only 3 percentage points.

Currently SUVs attract a total tax rate of 55.3% which will fall to 43%. This includes GST of 28% plus 15% cess.

 

The luxury car segment with engine capacity of more than 1500 cc which is now facing taxation of 49% will pay a lower rate of 43% post GST, according to a Crisil report.

Binaifer F. Jehani, director, Industry & Customised Research, Crisil Research said: “We expect only a marginal drop in small car prices. But, significant decline is expected in the sedan and UV segment prices.”

“And, the benefit will be more prominent for the luxury segment. This price decline will back the sedan segment revival,” she said.

Automobile companies remained guarded in their response and did not offer any reaction immediately.

However, the Society of Indian Automobile Manufacturers (SIAM), the apex body of the industry has welcomed the new GST rates.

“Almost all segments of the industry have benefited by way of a reduced overall tax burden in varying degree. This will pave the way for stimulating demand and strengthening the automotive market in the country, paving the way for meeting the vision laid down in the Automotive Mission Plan 2016-26”, said Vinod Dasari, President, SIAM said in a statement.

“The Government has done well to ensure stability in taxation while at the same time moderating the taxes wherever they were too high, he added.

He said differential GST for electric vehicles will also help electric mobility to gain momentum in India, however, the government should have provided similar differential duty on hybrid vehicles.

Sarika Goel, Tax Partner, EY India said, “Prima facie, there is no major impact for commercial vehicles. Auto parts are proposed to be taxed at 28% GST. This could push up cost of after-sales service/ maintenance of vehicles, Coupled with a possible increase in tax rate for services as well from 15% to 18%,” she said.

As per the GST slabs, electric and hybrid vehicles will be costlier, she said.

Subrata Ray, senior group VP, ICRA Limited, in a note to clients, said that the prices of small cars may increase marginally after the implementation of GST.