Small cars in India may get cheaper by 8% with GST reform, hints study

The prices of small cars in India could see a reduction of about eight per cent if the government decides to bring down the current Goods and Services Tax (GST) rate from 28 per cent to 18 per cent, claims a report by HSBC. Prime Minister Narendra Modi, on Independence Day, announced that the government is working on simplifying the GST slabs. The government is working on a simplified dual slab structure for GST, under which the small cars, along with many other goods, would see reduced tax rates.

The report by HSBC has highlighted that in the present structure, passenger vehicles attract tax in the range of 29 per cent to 50 per cent, which includes GST and additional cess. The cess is imposed on top of the standard 28 per cent GST rate, depending on the size and length of the vehicle. The report also noted that under a restructured tax regime, the government may consider reducing the tax on smaller cars to 18 per cent from 28 per cent, while for larger cars, a special GST rate of 40 per cent could be introduced, with the cess being cancelled.

The Indian passenger vehicle market has traditionally been driven by small cars. However, over the last few years, the small cars have witnessed a rapid decline in sales and demand, which became a major point of worry for the automakers present in the segment. However, with the proposed GST reform, the segment is expected to see a boost.

Bigger cars would be affordable too

Not only the small cars, but the GST reform, as it has been proposed, would bring down the price of the bigger cars too. The report claims that the bigger cars could become cheaper in the range of three to five per cent. The report stated that if GST is reduced, this would mean that for smaller cars, prices may come down by eight per cent and for bigger cars in the range of three to five per cent. The estimate is considering the proposed special 40 per cent GST slab as well.

The report also mentioned that all the two-wheeler manufacturers in India would benefit from the GST reduction. The domestic players are slated to gain more benefits owing to the reform, claims the study.

Meanwhile, the report also discussed another, though less likely, scenario of a flat reduction in GST from 28 per cent to 18 per cent across all categories of cars. In such a case, the cess based on vehicle size would continue, and all cars would see a price benefit of about six to eight per cent.

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