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Car Prices : The GST (Cess) effect!


Pralay
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The Goods and Services Tax (GST) Council which met in Hyderabad on Saturday raised the cess on mid-sized to large cars and SUVs in the range of 2-7 percentage points but kept the tax burden lower than pre-GST levels but increased the overall rate as compare to the rate announced just after GST.

 

1) What exactly our FM said:-  

  • “Finance Minister Arun Jaitley, who briefed reporters after the meeting said that there is no change in the GST cess on small petrol and diesel cars, hybrid cars or on 13 seater vehicles. The cess on mid-segment cars will go up by 2 percentage points, large cars by 5 percentage points and SUVs by 7 percentage points. Even after the increase, the effective tax burden will be less than the pre-GST levels, the minister explained.”    – Source Reported.          

 

  • “The council decided that it is only in large vehicles, affordability of consumers is high. Accordingly, the cess has been increased by two, five and seven percentage points. Even then, the pre-GST rate has not been restored even though we had a headroom for increasing by ten percentage points,” – Mr. Jaitley added.

 

2) What is the reaction of High-end car makers:-  

  • Luxury automobile makers, Audi, Mercedes- Benz and JLR India today expressed disappointment over GST Council's decision to hike cess on mid-sized and large cars and SUVs by up to 7 per cent saying it totally overlooked their contribution to the industry and economy. On the other hand, Jaguar Land Rover India President and Managing Director Rohit Suri said, "While the increase in cess will impact consumer demand, investment and job creation, we are glad that the government and GST Council took note of our concerns and somewhat moderated the increase in cess". 


 3) What was there earlier? Why Govt. raised the GST rate:-

  • Car prices had dropped by up to Rs 3 lakh as the tax rates fixed under the GST that came into effect from July 1, was lower than the combined central and state taxes in the pre-GST days.  To fix this anomaly, the council raised the cess. 

 

  4) Is it official or effective now?

  • Notification regarding increase in the effective rates of Compensation Cess on specified motor vehicles will be issued on 11.09.2017, effective from 00 hours the same day”     – Govt. GST twitter handle added.

 

  5) Here is the summarized result of GST & Compensation Cess (GST Cess) across various categories of vehicle in India :-

 

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Cheers!

Pralay

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Lovely article @Pralay. I feel, the cars had previously suffered an effective tax rate of around 28% (Excise+VAT) but now, with GST (@ 18%) replacing these the rates are likely to come down by 10%. However, the luxury car prices are not likely to come down as they are being charged at a higher GST rate.

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Thanks @Ranger.. yeah in majority cases overall tax is lesser than pre-GST era, except ther cases like Hybrid segment. Dont know why Govt. is doing that? There must be some logic.

But my feeling is different , GOI can think of charging tax for safety factors as well. Like, safer cars will enjoy more tax benefit (reduced tax rate). It makes sense In our country where road accidents are increasing day by day. Though the reason for road mishaps is not only for the unsafe cars ; rather infra, traffic sense etc contributes towards road accidents vastly. But safer cars will surely save some lives! Tax charging should encourage every stakeholder to make or/& buy more safer cars. GOI thought about sub 4 meter, engine capacity, ground clearance & what not to charge tax accordingly. Its better to think about safer cars as well.

 

 

Cheers!

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1 hour ago, Pralay said:

 Like, safer cars will enjoy more tax benefit (reduced tax rate).


Agree on this.
Vehicle categorization is still bad.
Hope they will end the SUB 4-meter rule, decide the vehicle segment based on Price/Safety/Pollution. 

Sometimes a 1.2 liter engine may pollute more than 1.5 liter engine, due to excess workout. 


Still there is no proper subsidy on electric vehicles, which was implemented by most of the developed countries. 

 

1 hour ago, Pralay said:

Hybrid segment

Hybrid segment in India is gimmick.
Specially market leaders trick, SHVS.


Though we have few expensive(proper) hybrids like Toyota Camry Hybrid. 
Which are out of reach for common people.


There are no proper vehicles in the low end segments. 

 

Hope Indian manufactures like Mahindra and TATA will come up with proper electric cars with a good range.

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4 hours ago, Ranger said:

Sometimes a 1.2 liter engine may pollute more than 1.5 liter engine, due to excess workout. 

Very correct. nice observation!!  

4 hours ago, Ranger said:

Hope they will end the SUB 4-meter rule

To some extent I like it. In a country like India space is always a constraint. Its good for us as well. This concept has given us semi-sedan or semi SUV cars like DZIRE or Duster, EcoSport. You can enjoy the status of Sedan or SUV yet will not face any parking related issues as compare to full grown sedans or SUVs. (Though I firmly believe, these are not true sedans & forget about true SUVs!!, not intended to hurt anybody's sentiment. Its my personal view. ) 

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