Impact of GST on Car Prices in India: Will Imported Cars Become Cheaper?

The Goods and Services Tax (GST) is poised to reshape the tax landscape in India, promising a simplified tax regime. While many sectors are set to benefit from tax reductions, the impact on the automotive industry is a topic of considerable interest. This article explores how GST might affect car prices, with a specific focus on imported vehicles.

Introduction to GST Implementation

The GST Council, a body comprising state and central government officials, has fixed the rates for over 1,200 items, including consumer goods. The event on May 18th marked a significant milestone in the implementation of the GST. While essential items are anticipated to see reductions in costs, the impact on car prices remains a point of discussion.

How GST Will Affect Car Prices

Under the new GST structure, cars will be taxed at a standard rate of 28%, with additional cess still to be disclosed. This structure is expected to have varying impacts across different segments of the automotive market.

Small Cars Sub 4 Meter Segment

The small cars segment is likely to experience no positive impact on prices, as the 28% GST cess will actually make them more expensive by 1-2%. This is due to the added duty despite the initial expectations of tax reductions.

Mid-Sedan and Mid-SUV Range 4 Meter but Engine 1.5 Litre

Mid-range sedans and SUVs with engines of 1.5 liters have a maximum additional cess of up to 15% on luxury cars. Based on the existing tax slabs, the maximum additional cess is anticipated to be around 12% on mid-segment petrol cars. For petrol cars, the prices are expected to increase by 1%, whereas diesel cars might see a marginal price reduction of 0.5 to 1%. However, without specific details on the cess, the exact impact remains uncertain.

Luxury High-End Cars (Engine 1.5 Litre, Ground Clearance 170 mm)

Luxury cars with an engine size of 1.5 liters and a ground clearance of 170 mm are expected to bear an additional duty of around 43%. For luxury petrol cars, this additional duty will result in a price hike of around 0.5 to 1%. In contrast, luxury diesel cars may experience a gain of 2 to 3%. The highest beneficiaries are likely to be luxury SUVs, as they carry around 43% duty, leading to a price reduction of close to 5 to 6%, making them the most significantly impacted by GST.

Hybrid Cars

Hybrid cars are projected to carry around 40 to 43% duty, which is anticipated to result in a significant price hike post-GST implementation. However, the exact impact will depend on the specific cess rate to be announced by the GST Council. As of now, hybrid cars like Ciaz, Ertiga, Scorpio, and Camry are expected to see steep price increases.

Conclusion

While GST aims to simplify and streamline the tax system, its immediate impact on car prices remains ambiguous. Small cars are likely to see a price increase, while luxury SUVs are expected to be the biggest beneficiaries. It is crucial for consumers to keep an eye on the specific cess rates to be announced, as they will play a decisive role in the final price tags.

Key Benefits: Simplified tax system, reduced tax complexity, cost reduction for essential items.

Key Concerns: Potential price hikes for small cars, uncertainty in cess rates for hybrid and luxury segments.