Automobile Sector: Cars may get cheaper if GST reduced from current rate

Automobile Sector: According to an HSBC report, the cost of small cars in India might decrease by approximately 8 percent if the government opts to lower the existing Goods and Services Tax (GST) rate from 28 percent to 18 percent.

The report highlighted that in the present structure, passenger vehicles (PVs) attract GST in the range of 29 per cent to 50 per cent, as a cess is imposed on top of the standard 28 per cent GST rate depending on the size and length of the vehicle.

HSBC noted that under a new 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 rate" of 40 per cent could be introduced with the cess being cancelled.

Should this modification occur, the cost of smaller vehicles might decrease by nearly 8 percent, whereas larger vehicles could see a price reduction of about 3 to 5 percent.

The report stated "This would mean for smaller cars prices may come down by 8 per cent and for bigger cars in the range of 3-5 per cent".

The report also mentioned that all two-wheeler makers would benefit from a GST reduction, with domestic players gaining relatively more. However, the government could see an impact of around USD 4-5 billion on GST collections in this scenario.

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 this scenario, the cess determined by vehicle size would persist, resulting in a price reduction of approximately 6-8 percent for all cars. Implementing a uniform 10 percent reduction would lead to the government incurring a revenue loss of about USD 5-6 billion.