In this article, Aklovya Panwar discusses the impact of GST on the sale and purchase of cars and two wheelers.

Introduction to GST

On July 1, 2017, the historical tax regime of India has passed after 27 years of effort. This date plays the most important role for Indian economy as we are shifting from a continuously followed rigid system of indirect taxation to one tax system i.e., Goods and services tax (GST).

The main efforts for GST has been started in the year 2006 when the UPA government announced the introduction of GST upto 2010 but the new tax regime remained a dream. Then in 2011, the 115th constitutional amendment bill was presented in the Lok sabha for the imposition of GST but the bill was passed in 2014 in Lok sabha as the 122nd constitution bill.After the wait of 2 years, the bill got assent from  the Rajya sabha aswell and has been passed in 2016.^[1]

The GST regime is based on the principle of Consumption and destination principle. It applies to all supplies of goods / services (as against manufacture, sale or provision of service) made for a consideration except –

1. Exempted goods / services from the mutual list of CGST and SGST
2. Goods / services which are out of the scope of GST
3. Exchanges which are below from the already set threshold limits under GST. ^[2]

In this GST regime there is a benefit to the producer/retailer, if they have already paid the GST then it can be set forth against that payable on the supply of goods and services or they can claim it back through tax credit mechanism.^[3]

The reason why GST has to introduce is because Indirect Tax system is highly intricated in India because there are various types of taxes that are charged by the Central and State Governments on Goods and Services. These taxes incorporate Entertainment Tax for watching film, Value Added Tax (VAT) for acquiring goods and services by the purchaser. Different taxes are excise duties, Import Duties, Luxury Tax, Central Sales Tax, Entry tax, and Service Tax.^[4]Businessmen have to maintain accounts which need to obey with all the applicable laws.

Now GST comes as a ray of hope because it seems to be a promising proposal.

Benefits

GST regime is an optimistic approach for the consumers and the sellers because it seems capable of reducing the market prices of the goods.^5] This will solve the complex and multiple taxation systems which somehow lead to the waning of “Black money” and allow Free Flow of Goods and Services ^[6]

Impact of the news GST regime over buying and selling of vehicles

The Goods and Service Tax bill proposed for the abstraction of tax has been in talks for a significant time now. Four of these GST sections which incorporate the “Integrated GST Bill 2017, The GST (Compensation to States) Bill 2017, the Central GST Bill 2017 and the Union Territory GST Bill 2017” have been passed by the Rajya Sabha. There is no direct impact on the purchase and sell of cars and bikes.But the outcome seems to be favorable as there will be a single tax imposition instead of multiple taxes which will surely enhance clarity.

Goods and Services Tax impacts are yet indeterminate to numerous and different sectors are yet indistinct in the matter of how this will affect their business, sales and profits.The automotive area has likewise been in a predicament about the impacts of Goods and Services Tax (GST) and its effect on two and three wheelers, passenger and business vehicles. Prior automakers crosswise over India reported pre–GST rebates to clear stocks and begin once more from first July 2017.

This made some turmoil in the brains of purchasers in the matter of whether to buy vehicles pre-GST or sit tight for its execution and probably take advantage of lower prices. It is evaluated that little vehicle are not going to encounter a sensational change in cost yet luxury vehicles could get less expensive.

Two Wheelers

After the implementation of GST, pre-showroom prices of two wheelers will be same in India with a flat of 28% GST.

Two wheelers have been distributed into two groups under GST rate – engine capacity.

1. Less than 350cc
2. More than 350cc.

Ex-showroom prices of bikes less than 350cc are set to decrease while those above 350cc will see an increase in prices.

The table will show the impact of GST on two wheelers in detail.^[7]

Engine capacity	Before GST	After GST	Examples	Effects
Less than 350cc	Tax of 30% which contains excise duty, VAT, CST etc	28% GST, down 2% as compared to 30%	Hero Splendor, Bajaj Pulsar 150, etc.	Prices get cheaper to some extent.
More than 350cc.	Tax of 30% which contains excise duty, VAT, CST etc	28%(GST)+3%(cess)=31%tax	KTM 390 Duke, Harley-Davidson Street Rod.	This difference in price will not be remarkable.

Impact on Cars

Cars have been distributed into two groups under GST rate – engine capacity.

1. less than 1200 cc capacity-(Sub 4 Meter Petrol Cars)

                                           (Sub 4 Meter Diesel Cars)

2. Medium-Sized cars above 4 meters but less than 1500cc
3. Cars above 4 meters and 1500cc
4. SUV
5. Hybrids

The table will show the impact of price in detail:^[8]

SEGMENT	ENGINE CAPACITY	BEFORE GST	AFTER GST	EXAMPLES	EFFECTS
Sub 4 Meter petrol cars	less than 1200 cc capacity	Taxed at 31.4%	28%(GST)+1% (cess)= 29%tax	Maruti Suzuki Alto 800 and Renault Kwid.	Prices will reduce.
Sub 4 Meter diesel cars	less than 1200 cc capacity	Taxed at 33.4%	28%(GST)+3% (cess)= 31%tax	Diesel versions of VW Ameo and Maruti Suzuki Swift	Prices will reduce.
Medium-sized cars more than  4 meters	less than 1500cc	Taxed at  46.6% in the form of excise duty, VAT, CST etc.	28%(GST)+15% (cess)= 43%tax		Car prices will reduce.
Cars more than 4 meters	1500cc	Taxed at  51.8%.	28% (GST)+15% (cess)= 43%tax	Honda City and VW Vento	Prices will reduce
SUV	–	Taxed at  55.3%.	28%(GST)+15% (cess)= 43%tax		Prices of SUVs will be largely impacted due to a significant reduction in taxes
Hybrids		Taxed at 30.3%	28%(GST)+15%(cess)=43% tax	Toyota Camry Hybrid,Honda Accord,Maruti Suzuki Ciaz and Mahindra Scorpio Intelli	The execution of GST will turn out to be impeding for sale of cars in this segment. This higher duty execution will conflict with the extremely coordinated endeavors being anticipated by the Indian Government to  ‘Go Green’. The prices of these vehicle will rise.

Examples

Here’s are certain examples on how companies are reacting to the GST rollout.^[9]This will clear the concept that how GST is being implemented.

Maruti Suzuki(CARS)	FALL IN PRICES(RANGE)
Alto	Rs 2,300 to Rs 5,400
WagonR	Rs 5,300-Rs 8,300
Swift	Rs 6,700 and Rs 10,700.
Baleno	Rs 6,600 and Rs 13,100
Dzire	Rs 8,100 and Rs 15,100
Ertiga petrol	Rs 21,800
Ciaz petrol	Rs 23,400
SUV Vitara Brezza	Rs 10,400-14,700,
S-cross	Rs 17,700-21,300.
	RISE IN PRICES
Sedan Ciaz and MPV Ertiga	Rs 1 lakh.

Honda India(CARS)	FALL IN PRICES(RANGE)
Hatchback Brio	Rs 12,279
Compact sedan Amaze	Rs 14,825.
Jazz	Rs 10,031
Model WR-V	Rs 10,064
Sedan City	Rs 16,510 and Rs 28,005.
SUV CR-V	Rs 1,31,663.

Toyota Kirloskar Motor(CARS)	FALL IN PRICES(RANGE)
Fortuner	Rs 2.17 lakh.
Innova Crysta	Rs 98,500
Corolla Altis	Rs 92,500
Platinum Etios	Rs 24,500.
Etios Liva	Rs 10,500.

 

Ford(CARS)	FALL IN PRICES(RANGE)
SUV Endeavour	Rs 3 lakh
Figo	Rs 2,000
SUV Ecosport	Rs 8,000
Platinum Etios	Rs 24,500.
Etios Liva	Rs 10,500.

 

BMW^[10]

1. Decrease price ranging from Rs 70,000 on base end version of X1 to Rs 1.8 lakh on the top end of its sedan 7 series.
2. The hybrid model i8 prices will increase ranging Rs 4.8 lakh to Rs 2.28 crore.

Conclusion

GST is the greatest tax reform in India established on the idea of “one nation, one market, one tax”. The time for which the Indian government was sitting tight for 10 years has at last arrived. The single biggest indirect tax regime has kicked into constrain, destroying all the inter-state boundaries for trade. The GST rollout, with a solitary stroke, has changed over India into a unified market of 1.3 billion people’s. In a general sense, the $2.4-trillion economy is endeavoring to change itself by getting rid of the inner levy boundaries and subsuming central, state and local taxes into a brought together GST.The rollout has resurrected the hope of India’s fiscal reform program.Then again, there are fears of disruption, embedded in what’s perceived as a rushed transition which may not assist the interests of the country.^[11]GST is not an overnight thought as it took years of efforts to put this idea into motion.It has impacted various segments of the market but the automotive was not directly affected by it.Now, eyes are on the implementation of this idea which comes as a revolution for the Indian economy.

References

^[1]Cbec.gov.in. (2017). Available at: http://www.cbec.gov.in/resources//htdocs-cbec/gst/ovw-short.pdf;jsessionid=046C66AA6589AA00802C0A75389DC3C2 (Last visited 5 Jul. 2017).

^[2]Goods and services tax (2017),https://www.aces.gov.in/Documents/gst-dgtps-01012017.pdf (last visited Jul 5, 2017).

^[3]What is GST bill and how it impacts on common man, Civilserviceindia.com (2017), http://www.civilserviceindia.com/current-affairs/articles/what-is-GST-bill-and-how-it-impacts-on-common-man.html (last visited Jul 5, 2017).

^[4] Id.

^[5]Cbec.gov.in(2017),http://www.cbec.gov.in/resources//htdocs-cbec/gst/ovw-short.pdf;jsessionid=046C66AA6589AA00802C0A75389DC3C2 (last visited Jul 5, 2017).

^[6] Ajit OmGhyan & Ajit OmGhyan, GST Slabs Pdf Download -GST Rates Structure, www.Studydhaba.com (2017), https://www.studydhaba.com/gst-slabs-pdf-download-gst-rates-structure/ (last visited Jul 5, 2017).

^[7]Your complete guide to GST impact on the car and bike industry, Rushlane.com (2017), https://www.rushlane.com/gst-impact-on-the-car-and-bike-industry-12245753.html (last visited Jul 5, 2017).

^[8] Id.

^[9] GST impact: As vehicle prices fall by up to Rs 3 lakh, check out which all turned cheaper, Firstpost (2017), http://www.firstpost.com/business/gst-impact-as-vehicle-prices-fall-by-up-to-rs-3-lakh-check-out-which-all-turned-cheaper-3771409.html (last visited Jul 5, 2017).

^[10] Id.

^[11]Mercedes, BMW, Audi price cut up to INR 10 lakh – Thanks to GST, Rushlane.com (2017), https://www.rushlane.com/mercedes-bmw-audi-price-cut-gst-12243141.html (last visited Jul 5, 2017).