GST bill passed, to make vehicles cheaper

Words by Abhishek Wairagade

The GST (Good and Service Tax) bill was passed in the Rajya Sabha with the whole house voting for it. Several state and central level taxes will be subsumed in the country, when GST is implemented from April 1, 2017.

The sentiment has been positive towards the automobile sector and several benefits are expected to be passed on to the consumer as well as the manufacturer. Currently, we pay about 27 per cent in taxes (excise duty, VAT etc) when we go to a dealer to buy a car/two-wheeler. The GST will subsume all the taxes at 18 per cent (most likely, yet to be decided) and thus, on-road prices of the cars will slashed by almost 9 per cent. Lower prices would lead to more sales, thus helping the automobile industry and the economy, overall. Several of the manufacturers are currently based in specific states in the country, most of them having setup their plants in Maharashtra, Tamilnadu, Haryana and Gujarat, where the state is legible to charge a 2 per cent CST, which is not creditable to the manufacturer. But GST will be creditable, thus helping the manufacturer. Also, carmakers will save on logistics, raw materials and IT systems, thanks to a unified tax method. Accessories are expected to become cheaper as well and GST might put the MRP based payment system away. However, insurance premiums are expected to be more expensive. The commercial vehicles industry is expected to take a hit as the GST is enforced though. Fleet productivity is expected to increase as all the time wasted at state border check posts will be saved since state taxes will be abolished with GST. The improved turnaround time will make transportation more efficient and as a result, operators may not feel the need to expand their fleet.

To give you an idea of how much a new car will cost post implementation of GST, here’s an example – a Punto 1.3 MultiJet Emotion costs Rs 4,78,000 (estimated) for Fiat to manufacture. The carmaker pays almost 47 per cent of taxes (excise duty, infrastructure cess, VAT and octroi). If considering a margin of 10 per cent, the final ex-showroom price in Pune stands at Rs 7.73 lakh. Now when you void all the taxes and apply the GST, the ex-showroom price of the car goes down to Rs 6.2 lakh. On-road Pune, the 1.3 MultiJet costs Rs 9.01 lakh. This number varies around the country as the VAT, insurance and handling charges in different regions of the country vary at the moment. With GST in force, it will be uniform, and in case of Pune, the 12.5 per cent VAT will go up to 18 per cent, which again is creditable. So the on-road price, post GST application will be around Rs 8 lakh, making your car a whopping Rs 1 lakh cheaper than it presently is.

Similar is the case with the luxury cars segment. Premium cars are currently charged a hefty 45 per cent of taxes. The GST is most likely to reduce the overall taxation amount by 5 per cent. There are very less chances of the GST being applied at 18 per cent on luxury cars. Details on taxes on luxury cars and imports are yet to be revealed.

Overall, the GST does paint a rosy picture in the horizon for the automobile industry then. We shall look forward to the implementation of the bill in the coming financial year.