Less taxes on wheels: High-end car buyers to benefit from GST
MUMBAI: If you’re looking to buy a luxury car, you may like to wait until GST. The potential benefit: Taxes which 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 goods and services tax (GST), and cess on luxury cars get capped. Yet, a cheaper car is not a given, since manufacturers could 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 1500cc 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 also premium models in mass car makers’ line-up that will 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 luxury car or any other big car which includes an SUV pays a total duty of up to 55% of factory gate price (Including 27% or 30% excise duty, a 12.5% -15% 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 like 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 eight to twelve CHK 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 Ernst & Young India Pvt Ltd,said the difference in tax rates could be anywhere from two to ten percentage points depending on whether its a sedan or a sports utility vehicle.
But carmakers are not celebrating just as yet and fear the government might introduce a new cess to make up for the revenue loss.