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Planning to buy a luxury car or an SUV? GST may save you up to Rs 85,000

Ajay Modi/Bengaluru 21 May 17 | 10:32 AM

SUV prices may come down when GST comes into effect

Bigger and luxury cars and SUVs are set to see a moderation in prices while you may have to shell out a little more for smaller entry segment vehicles from July 1 when the GST kicks in. Tractors and commercial vehicles could see a slight moderation in prices. Smaller cars would see a price increase of up to Rs 3,000 while powerful vehicles such as the Mahindra Scorpio and Toyota Innova are expected to get cheaper by approximately Rs 58,000 and Rs 85,000, respectively, in the capital. 

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In addition to having a common peak rate of 28 per cent across all passenger vehicles, the Council has imposed a cess of one per cent on small (less than 1,200cc) petrol cars, three per cent cess on small (less than 1,500cc) diesel cars and 15 per cent cess on larger SUVs and luxury vehicles. 

Large cars and SUVs are likely to benefit, with a lowering of indirect taxes on such vehicles. Currently, SUVs attract an overall incidence of above 50 per cent, which would come down to 43 per cent (GST of 28 per cent plus cess of 15 per cent), said Sarika Goel, tax partner, EY India. This augurs well for companies relying on bigger SUVs, such as M&M and Toyota, as well as luxury carmakers such as Mercedes and Audi. 

Some are still not sure if the government would bring down prices of bigger cars and make the smaller ones expensive. N Raja, director and senior vice-president (sales & marketing) at Toyota’s India operations said he will keep his fingers crossed till more clarity emerges.

Roland Folger, MD & CEO, Mercedes-Benz India, said the overall complex tax structure would now decrease and drive higher efficiency in operations. “We are hopeful that GST implementation is a step towards creating the much-required consumer demand for the luxury car industry, which declined in 2016."

The key segments of the automobile industry said GST rates have come in line with expectations and there was no major surprise. “As far as the passenger car industry is concerned, the GST Council has fixed the rates consistent with what was indicated and closer to the existing rates," said R C Bhargava, chairman at Maruti Suzuki, the country’s biggest car maker. 

But there could be some impact on smaller cars, indicated Bhargava as the VAT rate is not uniform across states. “Some top-end fuel-guzzling cars will turn cheaper," he said. Maruti Suzuki as a company is going to have ‘next to no’ impact, he added. 

“The new GST regime will be a zero-sum game for us," Rakesh Srivastava, director for sales and marketing at Hyundai, said. The treatment of hybrid vehicles could create challenges in introducing such feasible technologies in India. 

Subrata Ray, senior group vice-president at ICRA, said prices of relatively price-sensitive small cars may increase marginally after GST, while manufacturers would pass on the benefit of lower taxes on bigger vehicles and SUVs to customers. 

The industry is surprised over the differential treatment of hybrid and electric vehicles under GST. Hybrid vehicles are proposed to be taxed at the peak rate of 28 per cent along with a cess of 15 per cent. Electric vehicles will attract only a GST rate of 12 per cent. So, the top-end luxury cars and hybrid vehicles will attract a similar tax. Bhargava said clarity was needed on the hybrid taxes and the rationale behind changing the direction. Last month, Maruti’s parent company Suzuki announced its decision to invest Rs 1,200 crore to set up a lithium-ion battery unit in India and use these in hybrid cars. Maruti sells cars such as Ciaz and Ertiga with mild hybrid technology.  

“Differential GST for electric vehicles will also help electric mobility to gain momentum in India. We would have liked to see a similar differential duty on hybrid vehicles to continue," said Vinod Dasari, president at Siam and managing director at Ashok Leyland. 

Vinod Agarwal, MD & CEO at VECV, the country’s third-biggest medium and heavy commercial vehicle maker, said the impact on the commercial vehicle industry was neutral and there was a marginal decline in the tax incidence. 

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