Impacts & Opinions

Impact Analysis of GST on Automobile Sector

Price Effect

Hybrid Vehicles

  • In a distinct change in policy stance towards vehicle electrification, the government has levied the highest tax rate on hybrid vehicles, at par with more polluting sports utility vehicles, throwing a spanner in the plans of automakers.
  • Hybrid vehicles will attract total levies of 43% under GST (28% tax, 15% cess), more than smaller petrol and even diesel vehicles which would attract levies in the range of 29-31%. In comparison, pure electric vehicles have been bracketed in the 12% tax slab under GST.

Luxury Vehicles

  • Earlier credit of excise was not available to dealers..GST will resolve this issue.
  • Even the two percent CST will be an integrated GST (IGST) which will be fully creditable by the dealer when he sells the car in the other state. And even from a procurement point of view, if there are interstate procurement we suffer today at 2 percent CST which is a cost to the manufacturer, that also will not happen because those interstate procurements will have an IGST in it which is again available as a full credit to the manufacturer if the credit rules are simple and easy.
  • The second efficiency could be also on the input side. A bigger, more easy credit mechanism so that all the taxes on the input side, whether it is input services, whether it is capital goods, whether it is manufactured products, are set off against the output liability of GST.

Advance Received for car booking

Currently token money received as advance towards booking of vehicle is not liable for VAT as the same is payable at the time of sale of vehicles. However, this practice of holding advances without payment of any taxes will be withdrawn in the GST regime and taxes will have to be paid on receipt of the booking advances also. Therefore, dealers may either have to pay tax on the advances also out of pocket or may collect taxes extra even on the token advance.

Tax on Second hand car

In GST, there may be additional tax burden on transactions in second-hand motor vehicles and exchange of vehicles. The proposed GST rules, issued by the Government will consider the market value of the new vehicle while calculating the tax burden. Thus, consumers may end up paying more as the discounted amount would be taxed. Under the new GST rules, retailers and traders dealing in used vehicles will come under taxation. While under the existing rules, second – hand products are outside the purview of tax and as such, sellers will have to pay taxes at the same rate as the new products.