Budget 2016: The impact of GST on the Indian car market

The GST or the Goods and Services Tax bill is the biggest talk of this year’s budget. Some say that it could upset the balance of the economy, some are saying it is flawed in its current state whereas others are saying that if it isn’t passed it could lead to crisis in the Indian economy. And even the auto industry has its differences when it comes to the GST bill. But before we delve into that we need to know what the GST bill is. Well, in the simplest of terms, it is a tax that is a culmination of all the taxes we pay already like VAT and excise duties into one singular tax, the GST. 

Now, it holds different pros and cons to different people and for the car customers it’s mostly good news but the manufacturers themselves seem to be divided on the contents of the bill. 

For cars, the GST consists of four categories, Small passenger cars below four meters in length and under 1,200cc, mid-size passenger cars, between 1,200-1,500cc, luxury cars, over 1,500cc and SUVs over 1,500cc and over four meters. Currently we pay 12.5 percent excise duty on small cars, 24 percent on mid-size cars, 27 percent on luxury cars and 30 percent on SUVs. Then there is the NCCD of 1.1 percent 14 percent VAT on all of the above. If the GST bill is passed, the total tax on small cars will come down by  10 percent, the tax on mid-size cars will be lower by no less than thirty percent whereas the luxury cars and SUVs will see a tax exemption of 2.1 and 5.0 percent. 

Now manufacturers like Maruti-Suzuki and Hyundai are all in favour of the GST in its current format as it gives small car manufacturers massive tax reductions. Even after the lowering of price and distribution of margins at each level of the distribution process still leaves enough margin for the car makers. This is possible as both these car makers have most of their portfolio between the 800cc-1500cc range. Car makers like Toyota and Honda get their sales from larger cars which get only 2.1 percent tax reduction. This is the reason that car makers like Maruti and Hyundai are vying for the differential approach whereas car makers like Toyota and Honda are looking for a singular slab despite the fact that eighty percent of the countries follow the differential approach.