Mumbai: If you’re looking to buy a luxury or a premium car, you may like to wait until the goods and services tax (GST) is implemented. The potential benefit: Taxes will be about four to 12 percentage points lower.
That’s because indirect taxes such as excise duty, value added tax, state level taxes such as Octroi, local body tax and cesses get subsumed into the goods and services tax (GST), and cess on luxury cars get capped. Yet, a cheaper car is not a given, since manufacturers may raise prices and states could impose a new cess, tax experts at consulting firms said.
Cars longer than four meters and an engine size above 1,500cc are classified as luxury cars. Such models currently attract a basic excise duty of 27%. To be sure, it’s not only locally assembled models of luxury carmakers including Mercedes-Benz India Pvt. Ltd, Audi India Pvt. Ltd and BMW India Pvt. Ltd that are set to get a boost under the new tax regime, but premium models in mass carmakers’ line-up will also benefit from the new tax structure. For small cars, the GST is going to be tax neutral.
Under the current duty structure, a buyer of a luxury car or any other big car which includes a sport utility vehicle (SUV) pays a total duty of up to 55% of factory gate price (including 27% or 30% excise duty, a 12.5-15% value added tax (VAT) on base price plus excise and other cesses, 1% national calamity contingency duty, 1.8% auto cess, 1-4% infrastructure cess and another 4% Octroi/local tax in states such as Maharashtra). Now with the maximum cess on luxury cars getting capped at 15%, and with a GST rate of 28%, the maximum duty one is likely to pay is 43%. All the other cesses and local duties are likely to get subsumed with the GST, said Waman Parkhi, partner, indirect taxes, at KPMG India Pvt. Ltd. Even with a conservative computation, the benefit for premium and high-end carmakers could be anywhere between four to 12 percentage points on the factory gate price, he added. On the final consumer price, this differential tax impact may be lower depending on the mark up by different intermediaries in the distribution chain, he said.
Sarika Goel, partner, indirect tax at EY India, said the difference in tax rates could be anywhere from two to 10 percentage points depending on whether its a sedan or an SUV.
But carmakers are not celebrating just as yet and fear the government might introduce a new cess to make up for the revenue loss.
“I am not swearing by those numbers because the state governments can levy an additional duty,” said Shekar Viswanathan, vice-chairman at Toyota Kirloskar Motor Pvt. Ltd. On whether Toyota will pass on the benefit to the buyers, he said it would “pass on the benefit to the extent that it helps build volumes. One has to take into account the price to volume ratio.” Viswanathan said a lower tax on premium cars will help sales volume and will eventually benefit the exchequer.
Roland Folger, managing director and president at Mercedes India Pvt. Ltd, said the firm is “studying the proposed GST structure and it is premature to comment on the effect on the industry, till commodity-wise GST rates are not declared”.
With the subsuming of all taxes into GST rate, any tax benefit that arises out of the GST implementation will be duly passed on to the end customers who stand to benefit, he added.
An email sent to Audi India remained unanswered. A BMW India spokesperson declined to comment.