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How will GST impact car prices?

How will GST impact car prices?

Snapshot: The GST would be implemented in the month of July and it would affect the commodity prices. How would it affect the cars? We take a look.

According to the latest reports, GST rates for 81% of the products has been kept below 18% while remaining 19% of the goods would be charged above 18%. If you are not aware then you should also know that five slabs have been fixed – 0%, 5%, 12%, 18% and 28%  under which various products would be taxed.

For automobiles, it has been proposed that an additional cess charge be applied in addition to 28% base tax (applicable for all cars). For small petrol and diesel cars, a cess of 1% and 3% has been proposed while for large SUVs and sedans a cess of 15% would be applied besides a 28% base rate. Current levies vary from 25% (for small cars) to 55% (for luxury vehicles). 

Due to difference that GST brings in the taxation rate, industry experts believe that prices of small cars are likely to remain same or would increase marginally with the implementation of the GST while prices of larger vehicles, SUVs etc. are likely to moderate. The worst affected would be the diesel small car which is expected to witness comparatively highest rise in price.  

​At present a big car like Ford Endeavour, attracts a tax of about 48.5% which includes, infrastructure cess, VAT, excise etc. making the showroom price to be around Rs 30.89 Lakh. With same factory price and introduction of GST, the total tax of 43% would be applicable, so you may see a price drop of around Rs 1.15 Lakh if the manufacturer decides to pass the benefits to the end consumer.

While a small car like Alto 800 attracts a tax of around 26%. It makes the showroom price to be around Rs 3.54 Lakh. With the introduction of GST, the total tax would be around 29% (Base + Cess) which would make showroom price to be around Rs 3.62 Lakh, making it expensive by almost Rs 8000. Diesel small cars are expected to be become more expensive due to higher cess rate of 3%.

For the sake of simplicity, input cost (factory price) has assumed to be the same, although it is expected to change as manufacturers renegotiate the prices with the vendors. It would also impact the final prices but it’s not yet clear how would that would work out and affect the final price.     

It’s expected that with GST more buyers are likely to purchase the small cars in coming few weeks since a marginal hike is expected. At the same time, people aspiring to buy luxury cars, SUVs etc. may delay the purchase until GST gets implemented.

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