GST Impact – Small Cars & Two-wheelers to Become Expensive

In a recent meeting held by the Goods & Services Tax (GST) Council, the panel announced the GST rates which will come into effect from July 1, 2017 across the country.

Structure of GST

With the implementation of GST, Excise, Central Sales Tax (CST), Value Added Tax (VAT) Luxury cess and all the other direct and indirect taxes will be eliminated. The GST will be divided into 5 main slabs – 0%, 5%, 12%, 18% and 28%.The Base Rate for the automobile sector is fixed at 28% with an additional cess depending on the type and the category.

Impact on Small Cars

Small cars under 4 meters which largely dominate the Indian auto industry will  attract an additional cess of 1% for petrol vehicles with an engine size less than 1200cc and 3% on diesel vehicles with an engine size less than 1500cc. SUVs, mid-size cars and luxury cars will attract an additional cess of 15% over the base GST rate. Large Hybrid vehicles to attract 15% cess, however, smaller hybrid vehicles will  not attract cess. Electrically operated vehicle will be levied a GST rate of 12% and 0% cess.

Impact on Two Wheelers, Luxury Cars and Commercial Vehicles

Two Wheelers, Three Wheelers, Commercial Vehicles will be taxed at a base rate of 28%. Motorcycles with an engine size > 350 cc to attract an additional cess of 3%. Even though the GST will roll-out in July, luxury automakers like Mercedes-Benz, BMW, Jaguar Land Rover and Audi have already announced the price cuts on the locally made (CKD) vehicles in tune of 2% to 7% making luxury cars and SUVs slightly less expensive. Amongst the volumes brands, Ford has dropped the prices of  Figo, Aspire and EcoSport by Rs. 10,000 to Rs. 20,000.

Bajaj Auto has increased the prices of their flagship motorcycle Dominar 400 by Rs. 1000, as motorcycles with engine cc greater than 350cc will attract 3% cess. With an increase in prices for smaller cars, Car insurance for these models will see a hike as the insurance premium largely depends on the ex-showroom price, while insurance premium for luxury cars will reduce. Bike insurance for motorcycles with engine cc greater then 350cc will also see an increase in premium.

What should you expect?

Overall, the effect of GST is largely neutral and Bigger Cars and SUVs seem to benefit under the GST regime. The GST implementation will create a level playing field across the country, as it will bring uniformity in the overall taxation.

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