&imwidth=800&imheight=600&format=webp&quality=medium "How cheaper will cars become if GST rates are reduced by Diwali?")
To boost consumer spending, the BJP-led Central government is reportedly mulling simplifying the Goods and Services Tax (GST) structure by reducing the number of slabs, If approved, the new slabs will bring down the prices of passenger vehicles, especially cars. Here's how the lowering of GST on cars will impact their prices.
What's the government's proposal on GST?
The current GST structure divides goods and services into four slabs -- 5 per cent, 12 per cent, 18 per cent, and 28 per cent. The government is mulling over reducing the number of these slabs and categorising things into two main slabs -- 5 per cent and 18 per cent. A special 40 per cent slab for luxury goods will likely be introduced as well.
99 per cent of goods and services taxed at 12 per cent may shift to the 5 per cent slab. 90 per cent of articles currently being taxed at 28 per cent might be shifted to the 18 per cent slab.
How the proposed changes will impact car prices?
Small cars, which attract28 per cent GST and an additional cess, will be moved into the 18 per cent tax bracket if the proposal is approved. However, luxury cars and SUVs might attract a 40 per cent tax.
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A report by HSBC claims that the prices of small cars may drop by at least 8 per cent. The cess can be cancelled for all cars.
The bigger and more luxurious cars can also see a reduction in taxes in the range of 3-5 per cent.
All two-wheeler manufacturerswill also benefit from the reduction in GST. Domestic players will gain relatively more.
Another scenario the report mentioned is that the government might introduce a flat reduction of GST from 28 per cent to 18 per cent across all categories of cars. In this case, the prices of cars might come down by a factor of 6-8 per cent.