In one of the biggest tax reforms since independence, the national sales tax or GST Bill was on Wednesday approved by the Rajya Sabha to replace a complex and diversified state and local taxes with a single unified value added tax system to turn the country into world's biggest single market.
GST Bill is an excellent opportunity, when Government is thinking of rationalising the existing differential tax structure on vehicles based on physical dimensions and simplifying taxation burden.
Automobile industry contributes close to 45 per cent in the manufacturing GDP, so tax rationalization will have great impact on overall functioning.
GST will drive overall consumer demand since the cost for the logistics and supply chain inventory will be curtailed by almost 30-40 per cent, as experts suggested, the benefits of which will reach to consumers.
The auto industry has four different slabs of excise duty based on dimensions and engine capacity.
- Small cars that are less than four meters in length attract excise duty of 12.5 per cent,
- Cars longer than four meters but with engine of less than 1,500 cc capacity attract a duty of 24 per cent.
- Vehicles with engine capacity of more than 1,500 cc are charged an excise duty of 27 per cent and
- Vehicles with ground clearance of more than 170 mm attract an excise duty of 30 per cent.
GST will definitely unify the market, widening the tax net and generating efficiencies throughout the value chain.
What will be impact on Green Vehicle/ Electric Vehicle, and what provision Government keeps is something to watch for.
Currently, the tax levied by state governments on
- These vehicles are varied between 0- 5 % per cent. Only Uttar Pradesh, Punjab and Bihar charges more than 14 per cent. Road tax is almost nil in majority of the states on Green Cars,
If we consider the average VAT levied on green vehicles across India it comes up to approximately 4 per cent
What will be impact on Luxury cars, that is also something to watch for.
But I think, from currently 45% Tax to 18% ( As suggested), Automobile Industry would be biggest beneficiary of GST Bill.
