[sgiitk]

Originally Posted by wildsdi5530

GST is uniform at 25% for central govt. with 1% extra initially for the state govt.

The other day I saw a discussion on a financial channel, with the Secy talking. By the looks of it they are looking at a lower (revenue neutral!) rate and it may be in the 16-18% band.

[FIAT3031]

From my little known understanding on the GST

Currently there are two proposals doing rounds.

1) Govt Proposal: Single tax slab for all modes of transport ( yes SINGLE TAX)
That means a person who buys a 2-wheeler and a person who buys a Merc pays the same tax.
However this proposal will never see the light of the day.

2) Small car manf. are pushing for a Dual tax rate.
This is because multiple social & income strata exist in India
Hence lower GST rates for 2-Wheelers, 3 wheelers, small cars & CV
Higher GST for luxury & large cars

Taking about cars getting cheaper, well that may not be the case since Govt. is looking at a Revenue Neutral Rate (e.g: if the Govt is currently earning Rs 100 as revenues from Tax, then in the new tax regime it will not earn lower than what it is earning today)

[arakhanna]

Originally Posted by FIAT3031

2) Small car manf. are pushing for a Dual tax rate.
This is because multiple social & income strata exist in India
Hence lower GST rates for 2-Wheelers, 3 wheelers, small cars & CV
Higher GST for luxury & large cars

Taking about cars getting cheaper, well that may not be the case since Govt. is looking at a Revenue Neutral Rate (e.g: if the Govt is currently earning Rs 100 as revenues from Tax, then in the new tax regime it will not earn lower than what it is earning today)

Well while I agree with the above statement, the tax rate will not just get equalized sector wise but across the economy. Due to the high incidence of black economy, GST may just help honest taxpayers. Auto industry is one of them. Not much unorganised here. Hence I feel that the auto sector is one to benefit.

The buildup for a small car costing 100 ex:factory is 12.5 (excise and cess) 3 (nccd and cst) 15 Vat and 10 Road Tax(on average different between states) so the tax build up is 40.5%

The buildup for a large car costing 100 ex:factory is 24 (excise and cess) 3 (nccd and cst) 17 Vat and 12 Road Tax(on average different between states) so the tax build up is 56%

Given that GST will be between 16-27% and Road Tax will continue, expect an across the board reduction in taxation by 10% and higher for the larger cars.

I am waiting for the GST to become law to replace my old Honda City. Replace it with what? Now that is a whole different story.

[JoyPangli]

The Chief Economic Advisor panel has suggested a GST rate of around 18% +/- 2%. Anything above 20% would be impractical and there would be huge leakage and tax evasion in the system.

With the Congress's condition of 18% cap on the tax, there is a real possibility of under 20% GST, which would definitely mean reduction in Car prices specially for mid size and luxury segment.

Now lets wait and see if it gets passed in the Winter Session.

[Arindam_Nayek]

Just saw this article in NDTV. Thought its worth sharing here. (LINK)

So are we looking at a reduction of car prices ??

[tbppjpr]

Some good news is coming for small car buyers.

Government appointed panel is considering to put the small cars in general category of goods and service tax. This may result into straight removal of current excise duty and VAT of 12 to 13 percent.

Spare parts prices are also expected to come down.

Small Car Prices May Tumble on GST Implementation

"Car prices could come down significantly if the government-appointed panel's recommendation of a standard tax rate of 17-18 per cent for most goods and services is accepted. Manufacturers, which currently pay 30-50 per cent taxes on cars, are likely to pass the benefits of lower taxes to consumers, analysts say.

"The automobile sector could benefit significantly from GST if the government accepts the recommendations of the GST panel and puts automobiles (except luxury cars) in the general category of standard goods and services with a rate of 17-18 per cent," said Sanjeev Prasad of Kotak Institutional Equities.

Small cars (length of less than 4 metres and engine size below 1500 cc) are currently taxed at 30.4 per cent, which includes an excise duty of 12.5 per cent, central sales tax of 2 per cent, national calamity contingent duty of 1 per cent and VAT of 12.5 per cent.

Once the GST comes into effect, manufacturers may have to pay a tax of 17 -18 per cent on small cars, which could bring down prices by 12 per cent to 13 per cent.

"As GST would subsume all taxes, a standard rate of 17 per cent would mean that prices could come down by over 10 per cent," said Kapil Singh and Siddhartha Bera of Nomura.

Prices of spare parts (including batteries) are also likely to come down on GST implementation. The spare part industry is currently taxed at 28 per cent and it may have to pay 17-18 per cent tax once GST comes into effect."

[dpkbehera]

Car prices could come down significantly if the government-appointed panel's recommendation of a standard tax rate of 17-18 per cent for most goods and services is accepted. Manufacturers, which currently pay 30-50 per cent taxes on cars, are likely to pass the benefits of lower taxes to consumers, analysts say.

"The automobile sector could benefit significantly from GST if the government accepts the recommendations of the GST panel and puts automobiles (except luxury cars) in the general category of standard goods and services with a rate of 17-18 per cent," said Sanjeev Prasad of Kotak Institutional Equities.

Small cars (length of less than 4 metres and engine size below 1500 cc) are currently taxed at 30.4 per cent, which includes an excise duty of 12.5 per cent, central sales tax of 2 per cent, national calamity contingent duty of 1 per cent and VAT of 12.5 per cent.

Once the GST comes into effect, manufacturers may have to pay a tax of 17 -18 per cent on small cars, which could bring down prices by 12 per cent to 13 per cent.

"As GST would subsume all taxes, a standard rate of 17 per cent would mean that prices could come down by over 10 per cent," said Kapil Singh and Siddhartha Bera of Nomura. (Read)

The benefits of GST would not only accrue to small cars, but luxury cars too even though they are proposed to be taxed at 40 per cent under GST. Sedans (over 4 metres) and sports utility vehicles (SUVs) are currently taxed at 44.5 per cent and 52 per cent respectively.

Post GST, prices of luxury sedans could come down by 4-5 per cent, while prices of SUVs can tumble by 10-12 per cent, analysts say.

Utility vehicle maker Mahindra & Mahindra Chairman Anand Mahindra on Tuesday came out strongly in support of the GST. The government wants to introduce the GST from April 1, 2016, but the biggest revenue shake-up since independence is stuck in the Rajya Sabha, where the government does not have a majority.

The implementation of the GST will not only impact prices of cars, but also boost margins of auto manufacturers as they will no longer have to maintain depots across major states.

"The recommendation for abolishing inter-state tax, if implemented, could lead to servicing from a few major hubs, less time lost at state entry-exit points, improved efficiency and better fleet utilisation levels," Nomura said. The reduction in logistics costs could boost margins of manufacturers by 30-40 basis points, it added.

Prices of spare parts (including batteries) are also likely to come down on GST implementation. The spare part industry is currently taxed at 28 per cent and it may have to pay 17-18 per cent tax once GST comes into effect.

http://profit.ndtv.com/news/economy/...tation-1252830

Financial Impact of GST on Auto Industry
While there is a lot of uncertainty on the implementation of the goods and services tax (GST) in April next year, this new tax structure is expected to bring in better pricing and margins for the automobile industry. The automobile industry is reap rich benefits from the GST, which include reduction in cost for the industry, which is currently marred by endless taxes charged at different state levels. If the opinions and views of the experts are to be believed, the cost savings will run into double-digits for the sector.

GST is expected to eradicate small tax windows and lead to seamless travel of products from one state to the other. It would remove multiple taxes and bring forth the right value of the products. The government is also expected to come up with a separate duty structure for small and electric vehicles citing the rising pressure to keep carbon dioxide emissions under check. Further, he said there is no clarity on what happens to the customs duty. The expected GST is around 18% (taking centre and states together).

The figure below depicts the positive impact which GST will have on the automobile sector on a statistical basis.

Source: Ernst & Young

http://www.motorzest.com/2015/04/imp...utomobile.html

[avisidhu]

Why not rather ask the car makers to use that extra money for Airbags/ABS etc in every four wheeler? Wish the Govt shows more imagination and does both.

Having more vehicles plying on the roads is a terrifying thought anyway.

[Swapnil4585]

For the ready perusal and reference, I'm attaching a model law of the proposed Goods and Service Tax herewith, this post.

Coming onto pricing, the effect of Goods and Service Tax on the pricing of cars has to be broken down in parts. The basis of classification is -

- Parts falling under the 'Industrial Inputs' Schedule in the current State VAT Acts. (Taxed to VAT @ 4% to 5%)

- Parts not falling under the 'Industrial Inputs' Schedule in current State VAT Acts, or falling under the 'Revenue Neutral' rate of tax. (12.5% to 14.5%)

*Some industrial inputs are taxed at revenue neutral rates in some States.

The rate of tax under Goods and Service Tax regime, is suggested in the range of 12%-18%-40%. The rate of 12%, among others, should essentially be for the Industrial Inputs.

Comparison of present VAT and CST structure with the upcoming GST-

If a manufacturer manufactures and sells a part in State 'ABC', he has to charge and collect Excise Duty @ 12.5% + VAT @ 4% or 5% or 12.5%-14.5%, whatever the rate may be. That means these 2 taxes stand at 16.5-17.5% or 25-27%. Thus, under the Goods and Service Tax, the part would be taxed less than under the present system of VAT.

Now, if the manufacturer manufactures a part in State 'ABC', and sells it to a car maker in another State 'XYZ', the tax invoice raised by the part maker will demand an Excise Duty @ 12.5% and a Central Sales Tax @ 2%. The part purchasing car maker will have to issue a Declaration under the Central Sales Tax Act to the part manufacturer, to avail the concessional rate of 2%. Assumed he does, the tax on the part in this case comes to 14.5%. In this case, under the Goods and Service tax regime, tax amount will be even lesser.

While stating the above, I understand that parts like plastic, iron and steel, steel forgings, electrodes, wheels, tyres, axles come under the classification of 'Industrial Inputs', while the rest others come under the revenue neutral rates in present VAT structure.

Under GST, the sale of a car will be subject to a revenue neutral rate of tax, i.e. 18%. At present, a small car whose length is less than 4 meters and engine capacity is less than 1.2L for petrol and 1.5L for diesel is taxed as follows -

Excise Duty - 12.5%
(+) Central Sales Tax - 2%
(+) National Calamity Contingent Fund - 1%
(+) Local rate of VAT - 12.5 to 14.5%
(+) Entry Tax on Goods entering into Local Areas - ~2%

Under Goods and Service Tax regime, at 18% tax on sale, the price would reduce by about 12 to 13% margin, more so for the cars attracting a higher rate of Excise Duty today. Thus, I can safely conclude that by and large, the proposed Goods and Service Tax shall prove to be a boon for the manufacturers and customers and a bane for the Government and Environment.

[WorkingGuru]

Why are you'll concentrating on GST's effect on *prices* ? *Price* is a market derivative.

If at all anything, *costs* to manufacturers would come down, and that does NOT guarantee that retail sellers will reduce prices.

Before you'll say *competition*, read on.

In a country like ours, where people mostly don't understand taxes, a *layman* would get confounded by the complex GST concept this government has drafted.

If at all possible, most sellers will take advantage of the above & hold prices where they stand.

Apart from that, there's already news that (Link) apparently there's a price hike of ~30,000/- to be adopted across the industry post January 2016.

[ghodlur]

This is a mixed feeling news. On one hand cars getting cheaper is a good outcome but more cars on the roads is another disturbing outcome. Instead of reducing the taxes on the cars, govt should use the extra income on improving the road infrastructure in the country especially the rural India.

There exists a thread already on the forum.
http://www.team-bhp.com/forum/indian...ar-prices.html

Request mods to merge the threads.

[varsin]

Originally Posted by WorkingGuru

Why are you'll concentrating on GST's effect on *prices* ? *Price* is a market derivative.

Hi, a tax-cut or reduction in duties is traditionally passed on to consumers because the motive behind reduction in duties is to drive demand (sales) and not boost profitability of manufacturers. The only market dynamics involved here is demand and not prices because every manufacturer is supposed to cut prices and benefit consumers. It has happened in the past, car prices fell when excise duty was cut in 2014.

http://www.thehindu.com/business/Ind...cle5705671.ece

The same happened after the economic crisis of 2008-09.

The more important question is will GST retain a 17-18 per cent standard rate on small cars. If that happens, prices will definitely fall.

[gixxerboy]

Yes it is true that car prices MAY come down with the implementation of GST

http://profit.ndtv.com/news/economy/...tation-1252830

But again i think GST would help in curbing prices of essential goods and not cars which still are a luxury item in our country . Its not really advisable to wait/delay car purchase for implementation of GST expecting prices to fall down sharply.

[Swapnil4585]

Originally Posted by varsin

Hi, a tax-cut or reduction in duties is traditionally passed on to consumers because the motive behind reduction in duties is to drive demand (sales) and not boost profitability of manufacturers. The only market dynamics involved here is demand and not prices because every manufacturer is supposed to cut prices and benefit consumers. It has happened in the past, car prices fell when excise duty was cut in 2014.

The more important question is will GST retain a 17-18 per cent standard rate on small cars. If that happens, prices will definitely fall.

Originally Posted by gixxerboy

Yes it is true that car prices MAY come down with the implementation of GST

http://profit.ndtv.com/news/economy/...tation-1252830

But again i think GST would help in curbing prices of essential goods and not cars which still are a luxury item in our country . Its not really advisable to wait/delay car purchase for implementation of GST expecting prices to fall down sharply.

Since the auto market is an oligopoly, I don't think that the benefit to the customers will be substantial. The customers might be entirely benefited, partly benefited or might not benefit at all. The reason for this is that, some manufacturers (Tata Motors' passenger car division as an example) are incurring losses today, some have to allocate funds to pay statutory dues (Volkswagen Auto Group), some (like Maruti ) would want to invest a bulk of money in, let us assume, sturdy chassis and body shell development, etc. They will need funds for that.

Since we've also tilted in favor capitalism, it would not be prudent to expect the car makers to reduce the prices and pass on the entire benefit of reduced costs to the buyers. They had done it in the past because the economy was stagnant and car sales itself were falling. Not so today. We do see certain overpriced cars sell in good numbers for the value they offer. So when the customers' aren't bothered about the Value For Money proposition today, they'd certainly not be careful about it in the GST era.

Coming onto the rate of tax, the rate will be any number (17% or 18% as being debated) allotted as the 'Revenue Neutral rate'.

[chakri400]

Originally Posted by Swapnil4585

Since we've also tilted in favor capitalism, it would not be prudent to expect the car makers to reduce the prices and pass on the entire benefit of reduced costs to the buyers.

Very well put. This is similar to home loan interest rates or petrol prices, we expect the prices to come down many a times but it happens only once in a while. Whereas, the price increases happen pretty regularly and a reason for increase will be created and may be beyond layman's comprehension.
If the discounts have to be offered, the MRPs have to be hiked.