NEW DELHI: Companies that lease vehicles, including Uber, Ola and LeasePlan, have asked the government to provide a transition to the goods and services tax (GST) to avoid being saddled with stiff levies once the new tax regime is in place on July 1.
For employees using cars leased by employers or companies leasing vehicles for their usage, the proposed goods and services tax (GST) could bite because there’s no transition provision for the leasing industry. That could result in double taxation and sudden price shock for consumers once GST is rolled out.
Under the proposed framework for GST on services, the transfer of “right to use motor vehicles” and sale of such vehicles after the lease period is complete will be liable to the rate applicable on automobile sector along with the cess. For mid-segment and large cars, this will be 43% (28%+15%).
Currently, lease transaction and sale of vehicle after the lease period are subject to 12.5% value added tax. Leases are subject to service tax of 15% if the vehicle’s ownership is not transferred. Thus, for leases that are already running, the total tax bill will rise by as much as 30.5 percentage points, raising the prospect of double taxation of all vehicles leased in the pre-GST era.
“We welcome the introduction of GST. However, we are concerned about the fate of existing leased cars,” said Nitu Samra, finance director, LeasePlan India Pvt Ltd. “The financial impact for these cars is expected to be substantial as a consequence of double taxation leading to price inflation for its customers and losses to the industry. We do realise that there has been an unintentional oversight on this topic and are hopeful that this situation will soon be favourably addressed by the authorities for the leasing industry.”
Cars leased before GST are running under contracts ranging from three to five years on which no excise credit was available to the leasing industry. This, an industry executive said, can lead to a “prolonged” impact, especially as these cars will come to the leasing companies at the end of the lease term for resale at various intervals after GST is in place. Industry, which has represented the matter to the government, is hoping for some relief.
“Our industry has more than 100,000 leased vehicles as on date and impact of double taxation is to the magnitude of over Rs 2,000 crore,” said Hari Kaushik, president, Tranzlease Holdings India Pvt Ltd. “We have made representations at various levels and are hoping for appropriate relief ahead of July 1.”
The industry is banking on this as excise duty has been paid on vehicles leased pre-GST.
“Given the magnitude of impact on the industry and the fact that excise duty has already been collected on these vehicles, industry is justified in asking for relief from central GST in case of existing leases,” said Pratik Jain, leader, indirect taxes, PwC. “If this is not done, impact on industry would be significant and many of the existing leases might be terminated.”
Jain said the government could consider giving input credit to industry with respect to GST paid on lease rentals as an alternative.
Representations have been made by a vehicle leasing group comprising ALD Automotive of France, Netherlands-based LeasePlan, homegrown Tranzlease Holdings, BNP Paribas Group’s Aravl, Tata Capital, Clix Capital, Avis Lease and others. Taxi aggregators Uber and Ola are also part of this group.