A significant reform of the Goods and Services Tax (GST) regime is envisaged by the Government of India with a view to reducing the burden on automotive buyers.
At present, small cars are charged with 28 percent GST and an extra cess of 1-3 percent, whereas SUVs, which are heavily taxed, can be charged as high as 50 percent (both cess and GST).
According to the proposed changes, these rates can be reduced considerably to enhance the demand.
SUV Definition to be Dropped
Among the identified changes, one can mention the elimination of the existing definition of SUV, based on which it is classified under GST.
Currently, the rates of taxes are based on ground clearance, the size of the engine and the length of the vehicle whereby in most cases there is confusion. This abrogation of a definition has the potential to render the taxation even more fair and understandable.
Merit and Standard Two Slabs
Reports are that in the new GST structure, there will be only two slabs:
Type of meritable: Up to 5 percent GST on basic products.
Standard category: most other goods and services are subjected to 18 percent GST.
Such easing-off will probably help small cars priced below Rs 10 lakh and entry-level motorcycles to be more affordable to middle-class consumers.
Wider Impact Across Sectors
The reform is not restricted to automotive industry. There is also prospect of the government lowering GST rates on air conditioners and construction material, which will create an impetus in the consumer durable and infrastructure segments.
In the meantime, the electric vehicles undergo to the likelihood of staying under the current 5 percent GST, whereas luxury cars remain highly taxable. Provided that the new system is adopted, greater production in the manufacturing of the vehicles can be anticipated, the costs of components can be reduced, and there can be an enhanced overall production of the vehicles in India.
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