Our Terms & Conditions | Our Privacy Policy
India may soon roll out a simplified two-tier GST structure, cutting taxes on cars, SUVs, ACs, and cement ahead of Diwali. With cess removal and fewer slabs, the reform aims to boost demand, ease compliance, and widen the tax base while balancing state revenues.
The tax on passenger cars, except hybrid and electric vehicles, as well as three- and two-wheelers, could come down substantially by the Diwali sales season, if a proposal being put forward by the Centre as part of a structural overhaul of the Goods and Services Tax (GST) passes muster with the GST Council when it meets next.
The GST cut could be sharper for SUVs, just because the incidence of tax on them is currently as high as 50%, and these and all other vehicles under the 28% tax slab with varying rates of cess, may be moved to the 18% slab. Air conditioners and cement are among the other items to attract a lower GST rate than now.
Prime minister Narendra Modi announced in his Independence Day speech that a redesigned GST will have lower rates for everyday use items.
From Patchwork to Simplicity
The Centre’s plan is to have a two-tier GST with a merit rate of 5% for essential and daily use items, and an 18% standard rate. These apart, there could be certain ‘special rates’, which will be limited to very few products, including precious metals and ‘sin goods’, so that the GST structure, improvement of which is the central theme of the redesign, is not undermined.
Going by the Centre’s formula, both the 28% tax bracket and the cess, which will outlive its utility by November, will be done away with. The 12% rate, which generates barely 5% of the revenue, will also go.
A senior official said on Saturday that the Union government’s approach would not be to put its proposal on the table and ask the states to accept them. “It is a proposal that is being put up for consideration of the (GST) Council. Prior to that, a group of ministers (would review it). We would not want to preempt any of its (the council’s) powers, nor would we like to lock everything in, and say you (states) sign it,” the official said.
The weighted average GST rate may fall further from the current level of around 11%. Though there could be a short-term dip in revenue, this would be ‘managable’, the official said.
‘Patchy tinkering’ of the rates on a periodic basis has complicated the GST’s structure over the years, the official said, and stressed that the Centre is committed to the proposal. “It is inappropriate for us to make any assumption (of what the states think) and go ahead.”
Commenting on the vexed issue of inverted tax structure (where raw materials are subjected to higher rates than finished products resulting in higher tax costs to businesses), the official said this has been addressed ‘almost completely’ in the new design. “Inversion has been the reason for lower net GST collections due to bulk refunds,” the official noted.
Economists have long been pitching for a GST with fewer, and preferably lower rates and a broader base. They have also highlighted the need for addressing the issues of accumulated input tax credits, and misuse of the credits, by rationalising the rates, and correcting the incidence of inverted duties. All these are necessary for GST to bring about the desired push to economic output, and produce incremental revenue buoyancy.
Implications for Automobiles and Beyond
The tax cuts on automobiles could come as a bonanza for both the manufacturers and consumers in a subdued market. Sales of SUVs have been outpacing that of other four wheelers in recent years, and these account for more than half of passenger vehicle sales volumes, with a much higher share in value.
The special rates won’t be considered to be part of the structure, as these would essentially apply to gold and precious metals and a handful of ‘sin goods’ — mainly tobacco products and aerated drinks.
A rate cap of 40% is prescribed under current GST laws.
At present, over 15% of the GST revenue comes from the 28% rate; apart from specified ‘demerit and sin goods’, automobiles, air conditioners and even cement attract 28% tax.
However, while it would appear therefore that the reworked GST could result in lower taxation of sin goods, that may not be the case.
Another official said: “These (sin) items where the rate is much higher (than 40%) now, the (tax) incidence cannot be disturbed (reduced) as a matter of public policy.”The first official clarified: “There are only six-seven items which are sin goods that are going to 40% (slab). Automobiles are not sin goods.”
Inclusive of cess, the current taxes on tobacco products are much higher than 40%, for instance, chewing tobacco and gutka attract cess alone at 160% and 204%, respectively.
The second official explained that keeping in view economic logic and the interests of the common man, items like foods, farming inputs, health, have been either put under (low) specific rates or exempt. “Application of the rate structure to items has been based upon the economic principles,” the second official said, clarifying that the approach was not to take each item and ascribe a rate to it.
Referring to the various administrative steps taken in recent quarters to ease compliance, the second official said: “We believe that most people would like to pay their dues because it also costs to work outside the system. Issues concerning registration, refunds, etc, are being addressed, and the processes of the Centre and states are synchronised so that taxpayers don’t have a multiplicity of agencies to respond to. More forms are being automated, and instances of serving notices on the taxpayers are reduced.
However, he said there would still be need for enforcement to curb evasion. “We are creating better risk management systems.”
Currently, passenger vehicles attract taxes in the range of 29% to 50%, while hybrid vehicles are subject to 28% GST. Two-wheelers attract either 28% or 31% tax, and three wheelers, 28%. Electric vehicles are under a benign 5% rate.
Discover the latest in the auto world with new cars and new bikes, explore upcoming cars in India, and find your perfect match with cars under 5 lakh, 10 lakh or 15 lakh. Stay updated with the latest auto news and the rise of electric vehicles.
This article was first uploaded on August sixteen, twenty twenty-five, at twenty-seven minutes past eleven in the night.
Images are for reference only.Images and contents gathered automatic from google or 3rd party sources.All rights on the images and contents are with their legal original owners.
Aggregated From –
Comments are closed.