The Goods and Services Tax (GST) will have a major effect across car segments in the automobile industry. In order to better understand how it affects the car you may be interested in, there has to be an understanding of how these cars are segmented.
GST has four rates – 5%, 12%, 18% and 28%. Cars, as a whole, have been kept in the highest tax slab. What differentiates the impact of GST on cars and the prices that they will now be available in depends on the sub-division of cars into four categories – small cars, large cars, electric vehicles and hybrid vehicles.
All these categories will attract a cess over and above the 28% rate.
Cars less than 4 metres in length and powered by petrol engines with a capacity of less than 1200 cc will attract a cess of 1%, taking the total tax to 29%. This is less than the previous tax of 31.5% which means these cars will cost 2.5% less than their current on-road price. These cars will include the likes of the Maruti Suzuki Alto 800 and the Renault Kwid.
If the same cars are powered by diesel engines with a capacity of less than 1500 cc, then they will attract a cess of 3%, making it 31%. This is also 2.25% less than the current tax of 33.25%. The diesel versions of the Volkswagen Ameo and the Maruti Suzuki Swift fall under this category.
As for cars which measuring less than 4 metres and powered by 1200 cc (petrol) and 1500cc (diesel) engines, they will attract a cess of 15% which means a total tax of 43% – a decrease of 1.7% from the 44.7%. This includes cars like the Ford EcoSport.
The cars that are longer than 4 metres in length and have engine capacity of more than 1200 cc for petrol and 1500cc for diesel attract the same cess of 15%, taking the total applicable tax to the same 43%. But, this is 8.6% less than the tax of 51.6%. This includes the likes of the Honda City and Volkswagen Vento.
When it comes to Hybrids the government has placed them in the highest tax bracket. They will attract a cess of 15%. This is higher than their previous applicable tax of 30.3%. This means Hybrids right from the Maruti Suzuki Ciaz SHVS to the Lexus RX450h will attract a total tax of 43%, an increase of 13.3%, making them costlier. Electric vehicles, on the other hand, fall in the 12% tax slab and attract no excessive cess which makes them 7.5% more accessible.
Hence, the implementation of GST pretty much helps almost every potential car buyer. Interestingly, though, it becomes even more helpful for those planning to buy luxury cars.
The catch is that as of now there is no definitive segmentation of luxury cars as such. They will be segmented according to the aforementioned division which means that their price deduction will be a lot higher – simply because their deduction of a 2.25% or 8.6% accounts to a higher amount of money because their price tag is higher.
The only thing that luxury car buyers need to keep in mind is what kind of a segment does their car fall under.
For example, the MINI Cooper 3-door is less than 4 metres in length and has a diesel engine of less than 1500 cc. This means it will get a price deduction of 2.25% on its current Rs 28.5 lakh (ex-showroom, Delhi) price tag. The Mercedes-Benz A-Class A180 which costs Rs 27.58 lakh (ex-showroom, Delhi), is longer than 4 metres in length and has an engine bigger than 1500 cc – it gets a tax deduction of 8.6% – making it much more affordable than what the MINI Cooper would become post-GST implementation.
But this will happen in very specific scenarios. As most of the "luxury" cars have engines bigger than 1200cc for petrol models and 1500cc for diesel models and measure more than 4 metres in length. Which means they will be get a reduction of 8.6% in tax making them more accessible as you climb the price ladder.
It’s even better for luxury SUV buyers as presently, they attract a total tax of 55%. Post GST they will attract a cess of 15% on top of the 28% tax slab, taking the total applicable tax to 43% – a substantial 12% less than before. This makes for great price cuts on luxury SUVs like the Mercedes-Benz GLE and the BMW X5.
However, the only factor that remains to be seen post-GST implementation is how much of the tax reduction is passed on to the end customer by automakers. As for them, they also have to bear the increase in service tax levied by the government which eventually increases the input costs overall during the production of the car. For example, the Toyota Fortuner would be attracting 12% less tax than before but Toyota is expected to drop prices by only 7%.
Overall, cars are set to get cheaper. Exactly how much? That's a question that will be answered after July 1, 2017.
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