Implementation of the goods and services tax (GST) may change car-buying behaviour, prompting auto firms to revisit a significant part of their business, including product strategy. It is also likely to lower the prices of spare parts by doing away with multiple taxation.
Currently, depending on their length and engine size, passenger vehicles are taxed at four different excise rates in addition to value-added tax and cess.
The effective tax rate on small cars works out to 24.2%. For sedans with engines up to 1,500cc, the tax works out to be 36.2% and those with larger engines are taxed at 39.05%. On premium sports utility vehicles (SUVs) and luxury cars, the tax rate works out to be 42.5%.
The suggested tax structure under the model GST law is different and proposes a dual duty structure—18% for non-luxury cars and 40% for luxury cars.
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