With the country moving towards implementation of Good and Service Taxes (GST), the rates have been fixed for more than 1,200 items on 18 May, 2017. This initiative has been taken to achieve the aim of one nation one tax. The bill will affect the price of all goods from necessary to luxury products.
The GST Council has fixed different rates on various categories of product. As car is counted in luxury items, under the proposed GST tax rate list structure, it will attract the tax slab of 28%. Apart from it, the customer has to additional cess on car purchase.
Despite the revision in the rates of various products, the price of small cars is expected to stay intact. It is as per the verdict given by the finance minister in an interview that this thought has come into existence. Arun Jaitley said-
“Today the small cars are taxed at 31% and 29%. What does the GST say? It will be 28 plus 3%, 28 plus 1% – exactly the same rate has been maintained. So whether you buy it before 1st of July or you buy it after 1st of July, the incidence of tax is the same.”
Though the GST will be same on all the car models, the cess will be charged at different rates. Over and above this, the buyer has to pay road taxes as applicable. Under the present tax structure, the small cars whose length is less than 4 meter and have the petrol engine below 1,200 cc and diesel engine under 1,500 cc are taxed at 12.5%. Over this, the buyer has to pay 12.5% and 14.5% as VAT and other levies respectively. So, at present, the total interest ranges from 25% to 27.5%.
But now onwards, on small cars of length less than 4 meters and with the petrol engine of maximum 1200 cc you will have to pay cess of 1 per cent above the peak rate. While on the diesel cars whose engine is less than 1500 cc the buyer has to pay the cess of 3%. The mid-sized cars, SUVs and luxury cars will attract the cess of 15 percent.
However, people planning to purchase luxury cars or SUVs may rejoice and have a sigh of relief as with the implementation of GST the cost of these vehicles may reduce. Vehicles included in this bracket presently, attract heavy taxes of around 55% in whole. With the coming of GST, the rate will lower down to 43% (that is, 28% of GST + 12% other). It will result in significant deduction of up to 12% at the present rates. So, we can expect that in the times to come owning a luxury car or SUV will cost less.
Apart from this, the price of two wheelers will also be impacted by the implementation of Goods & Service Tax Bill. On the motorcycles of more than 350 cc engine capacity, the customer has to pay an additional cess which will be added to the base tax rate of 28%. It will attract the cess of 3% which in total will mount to 31% taxation. Currently, on two-wheelers the authorities levies 13 different types of taxes and thus, the rate is between 28% – 35%.
As stated in financial reports, it is expected that the new GST tax rates after the GST implementation will hike the overall tax to more than 29%, making small cars more expensive. This price hike may have a negative impact on the buying sentiments of the people and hence may affect the manufacturers severely. As a conclusion, the prices of cars post GST will make it hard for the middle-income and group and common man to possess his/her car. Whereas, the people moving to purchase luxury cars have a reason to glee.