In a move to reduce taxation burden from the shoulders of our customers, the government is rigorously working to implement the general service tax. The provision of a single tax uniform over all the products of a single field would reduce the taxes which are distinctly charged at present in the form of VAT, excise duty, border tariff etc.
When it comes to auto sector, the move will contribute 12% to our GDP, but the major proportion of customers that lie in the growing middle class might get affected adversely with the coming of GST. The reason is that it is expected to hike overall cess charged on small passenger cars more than luxury sedans or SUVs. The latter shall be charged with 28% uniform base tax plus 15% tax, which is very less as compared to the present cess between 25% and 55% and the additional cess to recover revenue loss.
Talking about small cars, they are charged 12.5% and VAT of another 12.5-14.5% at present, which will shoot up to 28% base tax along with 1% to 4% of additional charge, as the general service tax means to be uniform over all the products in basic taxation. This would cost the car 29% to 32 % levies, that too in a cost sensitive category especially for the middle class buyers. For manufacturers, the move shall impose an obstacle in becoming an export pioneer for small cars as it would be cost ineffective.
GST was proposed on 23rd September'2016 and the timetable was finalised to work out rates & legislative agenda. On 18th October'2016, centre proposed a 4-slab structure — 6 per cent, 12 per cent, 18 per cent, 28 per cent, & 4 per cent rate for precious metals but agreed upon 5 per cent, 12 per cent, 18 per cent, 28 per cent, plus cess on tobacco and luxury goods.Dec 22-23, 2016 Draft C-GST and S-GST finalised; Compensation law okayed. On 31st Mar’17, the ministry approved four sets of rules and capped tax rate at 40 per cent.
Though GST is followed successfully in many European countries and Australia, New Zealand and UAE, it might pose a problem in auto sector of India due to its ever growing customer base that comes straight from newly urbanised lower or middle class families, which tend to buy small cars. A uniform base cess might dissuade them from buying cars and rather invest in 2-wheelers.
