Beginning with the Society of Indian Automobile Manufacturers
(SIAM), several experts and bodies have welcomed the Goods and Services Tax
(GST) rates on automobiles in the country. The 14th Goods and Services Tax
(GST) Council Meeting, chaired by the Union Minister of Finance Arun Jaitley,
was held at Srinagar, Jammu and Kashmir on May 18, 2017.
The Council broadly approved
the GST rates for goods at nil rate, 5%, 12%, 18% and 28% to be levied on
certain goods. The Council has also broadly approved the rates of GST
Compensation Cess to be levied on certain goods.
The base GST rates for the
automobile segment have been set at 28%, which is broadly in line with overall
indirect tax rates at present. However, in addition to the base rate, the
Government has also proposed to levy a cess of 1% and 3% on small cars with petrol
and diesel engines, respectively.
“The rates are as per the
expectations of the industry and almost all segments of the industry have
benefitted by way of a reduced overall tax burden in varying degree. This will
pave the way for stimulating demand and strengthening the automotive market in
the country, paving the way for meeting the vision laid down in the Automotive
Mission Plan 2016-26”, said Vinod Dasari, President, SIAM.
The Government has done well
to ensure stability in taxation while at the same time moderating the taxes
wherever they were too high, he added. 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, he noted.
“Government has always encouraged
environmentally friendly technologies and with the current focus on reducing
emissions of greenhouse gases and reducing carbon footprint one would have
expected the lower taxation to continue on such vehicles in a technology
agnostic manner”,. Dasari said. He also pointed out that the “The inclusion of
10-13 seater vehicles used mainly for public transport in the same tax bracket
as luxury cars with a 15% Cess is also unexpected and may merit a review.”
Giving its views, ICRA Limited said that considering GST
will subsume infrastructure-cess currently levied on domestic passenger vehicle
industry, proposed tax rate for small car is likely to be price neutral. Bigger
sedans (engine size > 1,500cc and length >4,000 cm) and SUVs (engine size
> 1,500cc and ground clearance > 170mm) may see lower taxation and
eventually reduction in vehicle prices, despite 15% cess above the base GST
rate of 28%.
Subrata Ray, Senior Group Vice President – ICRA Limited, the prices
of relatively price sensitive small cars may increase marginally post GST,
while OEMs would pass on the benefit of lower taxes on Bigger Vehicles and SUVs
to customers. He further mentioned that GST rates are likely to be almost
neutral for the Commercial Vehicle and Two Wheeler and would marginally
increase for Three Wheelers as it didn’t attract additional NCCD earlier.
Sarika Goel, Tax Partner, EY India noted that hybrid vehicles are
proposed to be taxed at the highest GST rate bracket of 28% plus a cess of
15%. This could act as a dampener for
OEMs proposing to invest in hybrid technology and adversely impact sale of such
vehicles, unless a subsidy is separately given by the Government to offset such
Welcoming the GST rates
proposed for the automobile industry, Goel pointed out that auto parts are proposed to be taxed at 28%
GST. This could push up cost of
after-sales service/ maintenance of vehicles, coupled with a possible increase
in tax rate for services as well from 15% to 18%.
Gautam Khattar, Partner - Indirect Tax, PwC said that "Despite of automobile sector
being one of the most promising contributor to economic growth, it has been
facing the whip of increased tax rates and multiple cesses for a substantial
time now and even GST doesn't seem to help much. The Industry doesn't seem to
relish the idea of levying the highest slab rate of 28% on all categories of
vehicle regardless of the engine capacity or length. Likewise, parts and
accessories for such automobile have also been placed in the same bracket of
“Over the top, the government
seems to have deviated from its earlier stand of introduction of Cess only on
luxury goods, the current rates indicate a slab (ranging between 1% to 15%) of
cess on all vehicles. The electric vehicles seems to get the required
relaxation, surprisingly hybrid vehicles have also been included in the 28%
bracket, along with the highest cess of 15%. In comparison, tax on electric
vehicles has been kept at 12 percent,” he noted.