Tax shocker: What is the cost impact of 28% GST on SUVs & MUVs? Details here

Automobiles in India have always been costly due to the high rate of taxes. With the increasing production costs and hike in raw material costs, the price of automobiles is rising every year. In its latest meeting, the Goods and Services Tax (GST) Council slapped a 28 per cent tax on utility vehicles. With this move, utility vehicles including sports utility vehicles (SUV) or multi-utility vehicles (MUV) would be significantly costlier.

All kinds of SUVs and MUVs with lengths exceeding four metres, engine capacity of more than 1,500 cc and more than 170 mm of unladen ground clearance will now become costlier due to the tax restructuring. Adding woe to worry for the consumers is the 22 per cent compensation cess that will be applicable on these vehicles in addition to 28 per cent GST. Earlier the compensation cess for the MUVs was 20 per cent, which has been brought to on a par with the SUVs in the latest move of the GST Council.

While this tax burden is not applicable to sedans, a few sedans, especially the luxury ones will have to bear the brunt. With the automobiles in India already bearing the burden of high rates of taxes and cess, more than 50 per cent of the SUVs and MUVs' pricing will be made up of taxes in the restructured tax regime, eventually impacting the buyers, which may affect the vehicle sales as well. However, considering the aspirational value of vehicles, and the rising incomes, the challenges could be a temporary one.

The GST Council's decision to bring the GST compensation cess on SUVs and MUVs on par brings certainty to the tax treatment of these vehicles. However, the higher cost to the consumers would impact the overall ecosystem. Higher costs to the consumers could result in increased pricing of taxis and rent-a-cab for the common people where utility vehicles like SUVs and MUVs are used for travelling.

While there are downsides to such high taxes being slapped on SUVs and MUVs, and that too at a time when utility vehicles are dominating the vehicle sales chart in India, just like the rest of the world. The positive side of this move could be that consumers will show more interest in buying smaller vehicles like hatchbacks and sedans. It would also boost sales of compact SUVs and crossovers. Also, this tax hike move could translate to higher demand for electric vehicles. In fact, over the last few years, it has been the government's goal to promote electric mobility and encourage consumers to buy EVs instead of internal combustion engine-powered vehicles, which have been known for contributing significantly to environmental pollution through their tailpipe emissions.