Proposed GST Cut Could Drop Small Car Prices by 8%
A new report by HSBC suggests that if the Goods and Services Tax (GST) on smaller cars is reduced from 28% to 18%, consumers in India could see car prices drop by about 8%. This potential change is part of a broader recommendation to reform the automotive tax structure, aiming to make cars more affordable and boost sales.
Key Highlights from the Report:
- Small Cars: A GST reduction to 18% could lead to an 8% price decrease.
- Larger Cars: These vehicles might also see a price drop, but in a smaller range of 3% to 5%.
- Government Revenue: Such a move would create a revenue shortfall for the government, estimated to be between USD 4 billion and USD 5 billion.
- New Tax Model: The report also explores a new tax system where smaller cars would be taxed at a lower 18%, while larger vehicles would face a special rate of 40%, with the current cess being eliminated.
Current Car Taxation in India:
The present GST system for new cars includes a 28% GST rate plus an additional cess that varies by vehicle type.
- Small Cars:
- Petrol (under 1200cc): 28% GST + 1% cess = 29% total tax.
- Diesel (under 1500cc): 28% GST + 3% cess = 31% total tax.
- Mid-sized Cars: 43% total tax.
- SUVs: 50% total tax.
- Electric Vehicles (EVs): A highly concessional rate of just 5%, making them much more affordable.
In the post-GST era, small and luxury cars have seen a decline in their tax burden, while mid-sized cars have become slightly more expensive. SUVs have remained stable, and EVs have become significantly cheaper, which has influenced consumer choices and reshaped the market.