Impact Of GST on Cars.
GST has now arrived and is ready to be implemented on the stroke of midnight on June 30, 2017. People are worried whether there will be an increase in the car and bike prices due to implementation of GST.
Registration charges will be mostly neutral under GST. Major changes under GST would impact the cost of the vehicle and the motor insurance charges. VAT & service tax are charged currently on the cost of the vehicle. Different rates have been provided for different kind of vehicles.
All vehicles will be charged GST at the rate of 28 percent and specified cess for the vehicle. For bikes, which have an engine less than 350CC, no cess will be charged under GST as these are considered a necessity and not luxury. Small cars, which have an engine of less than 1200CC, are also deemed necessity and, therefore, will only be charged cess at the rate of 1 percent over and above GST at the rate of 28 percent. It is a surprise that the yachts, aircraft, personal jets and small cars with an engine over 1200CC would be charged cess at the rate of 3 percent. Medium segment cars less than 1500CC, SUVs and bikes having engine of more than 350CC will be charged cess at the rate of 15 percent. High-end hybrid cars like Mclaren P1, Porsche 918 Spyder, Laferrari would be charged cess at the rate of 15 percent.
Impact of GST Rate on Purchase Price
Small cars are charged a similar rate of 28 percent as compared to the mentioned GST rates and prices of such cars are expected to reduce due to the input tax credit on services available to car manufacturers under GST. Mid segment cars are expected to be neutral as there are similar rates under both laws. SUVs and luxury cars are expected to get expensive due to costs associated with accessories despite the net tax charged under GST (43 percent) is less compared to the current net tax of 45-46 percent. Bikes like Harley Davidson, Suzuki Hayabusa might get costlier due to the 3 percent cess charged.
Insurance services are also adversely affected by introduction of GST as the rate has increased to 18 percent from the current tax rate of 15 percent. Motor insurance is a mandatory provision before the car or bike is sold to the end consumer. There will be an additional tax burden of 3 percent on the end consumer at the time of purchase of the car or bike.
Free Supplies with Car or Bike
There are certain car accessories and free services offered by the dealers on the purchase of car would become taxable under GST. Free services and accessories had no VAT or service tax charged on them at the current moment.