There is little doubt that the most impactful changes in the Goods and Services Tax cuts recently announced by the government were in the automotive industry. From a single 28 per cent rate structure with a complex web of additional cess, automobiles and motorcycles have now been brought down to a dual 18 per cent and 40 per cent rate structure. This will entail dramatic price decreases.
You might wonder why larger vehicles would also see a price drop when the base tax rate has increased from 28 to 40 per cent. Until now, all cars attracted a cess over and above the base GST rate. Whether that was one per cent for small cars or 22 per cent for large SUVs, the additional cess meant that vehicles attracted a tax rate of up to 50 per cent. The cess also went to the central government, which shared it with the states, but now, with the base rate going up, state governments will get their share promptly.
So every car, whether it is an entry-level Maruti-Suzuki Alto, all the way to a luxury Mercedes-Benz SUV, will see price cuts, effective 22 September. And if carmakers pass on the entire amount of the tax benefit to consumers, these cuts are nothing to be scoffed at.
A release from Tata Motors highlights price reductions of up to Rs 75,000 for the Tiago, Rs 1,10,000 for the Altroz and Rs 1,55,000 for the Nexon. All these vehicles are under four meters in length and have lower-capacity engines that qualify for the slashed rates. Even on the larger Safari, where the rate has gone up but cess has been slashed, prices have been cut up to Rs 1,45,000.
The story will be similar across other brands as well. Cuts on popular models such as the Hyundai Venue and Maruti-Suzuki Fronx, both under the four-metre mark, will be impressive once announced. Auto executives noted that these price cuts, which were unexpected before the Prime Minister’s Independence Day speech, might bring in buyers to the new car market. It might also drive buyers to buy more heavily specified variants and automatic transmissions. Small cars will likely have Advanced Driver Assistance Systems (ADAS) and other tech features going forward.
A win for hybrids
Electric vehicles, no matter the number of wheels or size, remain under a five per cent GST rate; but rates have been rationalised for hybrids.
Possibly realising that ‘affordable’ electric vehicles are yet to enter volume production and geopolitical issues surrounding lithium batteries and electric motors, hybrid vehicles will also fall into the same GST rate as internal combustion engine vehicles. Thus, small hybrid cars will also attract a 12 per cent GST rate.
This is a huge win for Maruti-Suzuki, which recently inaugurated its hybrid car battery facility (a joint-venture between Toshiba, Denso and Suzuki) in Hansalpur, Gujarat. This battery is going to be fitted in Maruti’s new ‘Victoris’ SUV. With the new rate cuts, a hybrid version of the Fronx is also certainly on the cards in India, as it is already manufactured for export in Gujarat.
Larger hybrids also fall into the higher rate category and should see slight price cuts as well. In fact, the reduction of cess and some states such as Uttar Pradesh giving road tax benefits, could lead to a huge sales boost for hybrids such as the Honda City e:HEV and Toyota Innova Hycross. There is also some lacunae in the text of the rate cuts, which might leave some scope for rate cuts for ‘range extenders’—which are battery-electric cars with an internal combustion engine acting as an onboard generator.
There are cuts elsewhere as well; motorcycles with an engine capacity of 350cc and below have seen duties slashed to 18 per cent from 28 per cent. Whereas, motorcycles above that engine capacity have seen duties hiked to 40 per cent. This despite a long X post from Siddhartha Lal, CEO, Eicher Motors, owners of Royal Enfield, imploring the government not to differentiate between motorcycles on engine capacity. He argued that the strength and volume of the Indian market made Royal Enfield competitive in global markets. The rate increase will impact Royal Enfield’s popular adventure tourer, the ‘Himalayan’ and some other products, as well as motorcycles from Triumph (made by Bajaj) and Harley Davidson (made by Hero Motocorp).
Tractors have also seen GST rates slashed, leaving Mahindra a huge winner across the board.
Now, it is certain that some states will increase rates of road tax and registration fees to cover revenue shortfalls. A part of this shortfall will be covered by an increase in petrol and diesel sales, due to the increased population of motor vehicles. But that also means increased congestion.
A larger domestic market, coupled with more advanced technology vehicles, will also make ‘Made In India’ cars globally more competitive. Honda and Suzuki are already exporting cars from India to their home market, and this trend will only continue.
Sales for September will likely be muted in the first few weeks, but that was expected with the early shradhh season, which is considered inauspicious. The rate cuts actually kick in from the first day of the Navratras, and traffic jams (or the lack thereof) will give a great indicator of how these rate cuts have done with the consumer.
@kushanmitra is an automotive journalist based in New Delhi. Views are personal.
(Edited by Theres Sudeep)