GST For Automobiles: SIAM Suggests Taxation Structures

auto.ndtv By Cyrus Dhabhar Oct 08, 2016

With GST's nationwide rollout just around the corner, everyone seems to be a little confused about what the implications on the automotive industry might be. More importantly, no one really knows if cars will become cheaper or more expensive as compared to what they are today. SIAM has put out a draft on what it thinks should be the structure for GST for India to make life easier for both consumers and the automotive industry in general. According to SIAM, the proposed tax structures should be divided into three slabs. They are as follows:

1. All small cars, MUVs, two wheelers, three wheelers and commercial vehicles should be clubbed into a standard GST rate.

2. All other cars (other than small cars) to be clubbed into a second GST structure that will be 8% higher than the standard tax structure.

3. All hybrid-electric and full-electric vehicles to be clubbed into the third tax bracket which will be 8% less than the standard GST taxation rate.

The two part structure for normal (internal combustion engine automobiles) is in sync with the tax structure that the country had a few years ago before the further bifurcation of tax structures on luxury cars. India today has four slabs of taxes depending on size and engine capacity. The tax percentages range from 12.5% for small cars, CVs, two wheelers and three wheelers to 30% for large SUVs and luxury cars. In addition, the government also recently levied tax ranging from 1-4% as infrastructure cess. SIAM is seeking to consolidate the tax slabs into two simplified structures for normal vehicles with an additional third for hybrids.

SIAM members have also shown concern about the huge investments made in locations falling under Area Based Exemption scheme in places like Uttarakhand, Himachal, etc. As the period of the scheme is still not over, manufacturers say that there is a need to protect the benefits to those units under GST regime till the end of the scheme. SIAM has also pointed out that additional charge like road tax needs to be a part of the GST tax slab in order to further reduce consumer burdens.

GST will be a welcome move for the Indian automotive industry as in the current scheme of things, the industry accumulates a lot of embedded taxes and duties making manufacturing in India less competitive as some other countries. Implementation of GST will also mean a streamlined and more transparent approach to component sourcing and overall logistics.

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