GST a win-win for auto industry; should you delay your car buying plan?
Presently, there are four excise tax slabs for cars in India:
The other major chunk of taxation for cars is the value added tax (VAT) that ranges inbetween 12-14.Five per cent across states. Add the various cesses in the country and even for a puny car, a customer pays upwards of twenty five per cent on tax and cess alone. From there it keeps going up to near forty per cent for a mid-size sedan like Honda City, forty five per cent for an executive sedan like Toyota Corolla and forty eight per cent for burly SUV like a Pajero.
Once, GST comes into force, the taxation on cars, any car for that matter, will see a drastic reduction. For now, the talk is there would be three slabs of taxation in GST-merit, standard and de-merit.
Merit will likely be a 17-18 per cent tax rate and have products that the government wants to propagate and incentivize. In the automobile industry that should include two-wheelers and petite cars. That would mean a reduction of at least 7-8 per cent tax on cars like Maruti Alto, Renault Kwid or Hyundai i20.
Standard is likely to be a twenty per cent tax slab and will apply to a majority of the products in the country. All sedans, saloons and other entry-level SUVs like Scorpio and Creta will fall under this category. This category will actually see a steeper tax reduction of almost 20-28 per cent. No wonder, Mahindra and Mahindra chairman Anand Mahindra is a very blessed man today.
The de-merit category will most likely be a relatively steep forty per cent slab that will apply only to luxury and imported cars. Most of them like a Mercedes C Class or a BMW five series sedans are taxed at near fifty per cent today anyway. It may sound ironical, but luxury car makers will actually be blessed. Even for them, it would be a 7-8 per cent tax reduction.
In all these cases, given the supremely competitive nature of the industry, the benefit will be passed on to the consumer. So we are potentially looking at a price reduction for cars anywhere inbetween seven and twenty five per cent depending on what category the car belongs to.
The question to be asked now is, should you buy a car now? Or in the next eight months till the time GST is applicable on April 1, 2017. If you do so, not only do you miss out on the diminished prices of next fiscal, your car also stands the risk of taking a hit on resale value. It is a no brainer. It makes absolutely no sense to buy a car, any car, now. Unless, you absolutely have to.
The industry for now is glad and rightly so. Battered by the green lobby and threatened by a number of anti-pollution measures, this is the very first good news for them in a long time. Yet, once the dust lodges down, they would wake up to the reality of declining sales in the rest of this fiscal. It will be worse, if the Centre and State governments are not able to tie the liberate finishes quickly. Wednesday only spotted the passage of the enabling provision for the Bill and a lot of work still needs to be done.
If the deadline of April 1, two thousand seventeen is missed, the anguish would increase for automobile industry and for those who would be waiting to buy a car. The more the delay, the greater the anguish. The industry would attempt and bring its gimmicks and you may expect discounts like you have never seen before in the next few months. But discounts have for long been a twelve month phenomenon and they will stay even after GST is implemented.
After the initial euphoria of GST dies down, the automobile industry will wake up to the reality that a bleak festive season is ahead of them. For consumers, this is the time to sit taut and wait. It should, be worth it.