Impact Of Gst On Automobile Industry.docx

The fourteen years long journey of what is heralded as ‘Biggest-ever tax reform’ culminated into fruititon on July 1, 2017. Goods & Services Tax Law in India is a comprehensive, multistage, destination-based tax that is levied on every value addition. Goods and service tax is expected to eliminate the cascading effect of taxes it provides the much needed stimulant for economic growth in India by transforming the existing base of indirect taxation towards the free flow of goods and services. Acounting for 7.1% of countrys GDP the Automobile industry in India is among the largest in the world. Almost 13% of the revenue from central excise is from this sector and claims a size of 4.3% of total exports from India. Despite of its capacious contribution to the economy and a certain propitious growth potential the auto industry has been battling the complexities and hardships of multiple indirect taxes and higher tax rates for a considerably long time. Prior to GST the end used had to bear the burden following indirect taxES based on the segment of the automobileSEGMENT

Excise

NCCD + AUTO CESS

VAT

Road Tax + Motor Vehicle Tax

TOTAL

Small Cars (displacement < 1200cc)

12.50%

1.1%

14%

State Based

28% (Approx)

Mid-sized Cars ( 1200cc < disp. < 1500cc)

24%

1.1%

14%

State Based

39% (Approx)1

Luxuary Cars (displacement > 1500cc)

27%

1.1%

14%

State Based

42% (Approx)

SUV’s (displacement > 1500cc, ground clearance > 170 mm)

30%

1.1%

14%

State Based

45% (Approx)

As can be seen above the excise duty for vehicles is divided into four slabs, in which the smallest tax

rate is applicable to small cars. After GST is implemented, taxes levied by the centre like excise duty and state levels taxes like sales tax, road and registration tax would all be subsumed into one. Post GST automative sellers will be collecting and playing CGST and SGST (i.e. Central GST and State GST on intra-state sale of vehicles. Further, in case of inter-state sale of the vehicles, they will be collecting

and paying IGST (i.e. Integrated GST, which is nothing but the summation of CGST + SGST). Impact of GST on procuremnt of vehicles is examined below:

Body Legth / Category

Enginge Capacity

All sub 4-meter vehicles

Less than 1.2L Petrol

All sub 4-meter vehicles

Less than 1.5L Diesel

All sub 4-meter vehicles

Taxation before GST

GST Regime Taxation

Difference

31.5%

29% (28% + 1% Cess)

2.5% 

33.25%

31% (28% + 3% Cess)

2.25% 

More than 1.2L Petrol 1.5L Diesel

44.7%

43% (28% + 15% Cess)

1.7% 

Cars larger than 4-meter (excluding SUVs)

More than 1.2L Petrol 1.5L Diesel

51.6%

43% (28% + 15% Cess)

8.6% 

All SUV’s larger than 4-meters

Petrol & Diesel irrespective of Displacement

55%

43% (28% + 15% Cess)

12.0% 

All Hybrid Cars

30.3%

43% (28% + 15% Cess)

13.3% 

Electric Cars

20.5% (6% excise + 14.5% VAT)

12%

7.5% 

(Excise Duty + Various Cess + NCCD + VAT)

As a result of GST Maruti Suzuki announced a price drop ranges from Rs 2,300 to Rs 23,400 depending on the the size of the car and the variant that is selected. Small cars with length under 4 meters with petrol engines under 1.2-litre and diesel engines under 1.5litres have a price drop of 2.5 percent and 2.25 percent for example Indias best selling car Maruti Suzuki Alto’s price has been reduced marginally ranging from Rs 2,300 to Rs 5,400. However WagonR, which lies in the same caregory as Alto and is another car that enjoys massive popularity in India, saw a slightly more reduction in its price ranging from 5,300 to Rs 8,300 depending on variant and fuel type. Celerio saw almost same price cut as WagonR. The evergreen Swift however has received maximum price cut in this range Rs 6,700 to Rs 10,700. Larger cars above 4 meters have had a price drop of 8.6 per cent whereas SUVs have had a price drop of 12 per cent, the highest in any segment. The price cut for new Dzire ranges from Rs 8,100 to Rs

15,100. The largest selling SUV i.e. Vitara Brezza gets the maximum price cut even though it is in sub 4meters category. The SUV which is available only with a diesel engine gets price cuts ranging from Rs 10,400 to Rs 14,700 depending on the variant. The larger S-Cross hatchback also receives a large price cut ranging from Rs 17,700 to Rs 21,300. The S-Cross gets two diesel engines and is longer than the 4-meter length which makes it eligible for a 12 per cent price drop. The Ertiga MPV and the Ciaz both get petrol and diesel engines. The diesel engines get a mild hybrid or SHVS setup due to which Maruti classifies it as a hybrid car. While the price increases for the diesel models have not been announced yet, the petrol versions of the Ciaz and the Ertiga have received a price drop. The Ertiga gets cheaper by Rs 12,300 to Rs 21,800 while the Ciaz has received the largest price cut ranging from Rs 13,200 to a whopping Rs 23,400.