Even after 15 years of
its proposal, the future of GST still hangs in the balance. As the monsoon
session of the parliament is about to begin, automotive manufacturers and other
business alike await for the clearing of the long pending bill. The government is
hopeful that the bill would be cleared on the first day itself.
What is GST?
It would not be wrong
if we call GST as the biggest taxation reform. The GST stands for Goods and
Services Tax and is basically a proposed tax reform at the moment. And it would
remain so until the bill is passed in the parliament that would put it into action.
This is an indirect tax much like the VAT, service tax, entertainment tax etc.
that we have at the moment and this would be levied by the state and centre in
the form of State GST and Centre GST on the manufacture, sale and consumption
of almost all goods and services all across India. It is aimed to transform the
economy and boost the GDP.
History of GST
The model of the GST
was proposed and designed in the year 2000 by the Vajpayee government. The
deadline of April 1, 2010 was set for its implementation. The GST has been in
news off and on for over 15 years now. Each successive government has tried and
promised to implement it, but has not been successful so far.
What would it do?
The GST is simply a
common indirect tax meant to replace all existing indirect taxes like the VAT,
entertainment tax, excise duty etc. and make the whole indirect tax system simpler.
It would merge all the indirect taxes into a common tax that would come to know
as GST. It should make governance and management much simpler in practice. It
should ideally reduce hassles for business owners and consumer alike. With the
implementation of GST India’s credentials as an investment destination and
consumer friendly economy should improve and the cost of doing business should
reduce too as an effect.
How would the proposed GST rate impact car prices?
Manufacturers are
divided on the GST and some have opposed the uniform tax structure and come out
in favour of the differential structure. At present, the excise duty for
vehicles is divided into four slabs, in which the smallest tax rate is
applicable to small cars. With the GST in place taxes levied by the centre like
excise duty and state levels taxes like sales tax, road and registration tax
would all be subsumed into one. Manufacturers like Maruti Suzuki and Hyundai
which derive major sales from the small cars are not in favour of this and
prefer a differential rate for different segment of the cars.
It still remains to be
seen if the small cars would indeed be grouped under standard good and services
category. If the standard tax rate of 17-18 percent is accepted, the small
cars as well as the big cars would get benefitted with GST implementation since
the overall difference is in favour of the Industry and overall rates are
expected to decrease.
If the governments
agrees to recommendations made by the panel, and put small cars (except luxury
cars) in the standard goods and services category, the prices of small cars may
reduce by as much as 10 percent, while the prices for luxury sedans as well as
SUVs may see a drop of about 2-5 percent.
The trend among the
auto industry is to pass the benefits to the customers. This is largely
due to the absence of any cartels and the high cost associated with holding the
inventory. For this reason, it’s believed that the proposed GST rate of even
18-20% would reduce small car prices by about 8-10%. This is an assumption made
considering that cost factor i.e. price of input materials like steel, plastic
parts, batteries etc. would not change much. So, an Alto that costs at present
about Rs 3.49 Lakh to the customers can see a price reduction of almost Rs
25,000.
The steepest price
drop would be in the case of compact sedans, so a difference of about 21% can
make the Amaze cheaper by almost Rs 1 Lakh.
Companies like
Mahindra and Mahindra would be perhaps the biggest beneficiaries of this, since
it derives major revenue from the SUVs sales and it forms a large chunk of
their portfolio. It’s expected that the manufacturer would pass the benefits to
the customers. Anand Mahindra, Chairman and Managing Director
of Mahindra Group had expressed his favourable views the last time
GST was in the parliament for discussion.
Will the GST impact used cars too?
The GST bill at
the time of introduction was aimed to increase the effective tax base by
comprehensively covering all sorts of businesses. It was
therefore expected that virtually all goods and services including used
car businesses would be covered under it. If the used car businesses would have
been brought under GST framework, it would have been done with a
token levy of 1% tax, which would made used vehicle trade more
organized and used cars slightly expensive. However, the government has
scrapped the idea and the additional levy of 1 per cent proposed earlier
would not be applicable
No comments:
Post a Comment