Keeping auto industry’s rapid growth in mind, the Government is likely to fix an affordable slab rate of 28 per cent for both small and medium sized cars under the Goods and Services Tax (GST) for the consumers. It, however, claimed that the slab rate of small cars would remain close to the current tax rate while mid-sized ones would be available at much cheaper rate than the current prices in the market.
“As we have decided to make ‘One nation, One tax’, we need to look at the growth of the products too. If we take car segment for example, we should make them available at the cheaper prices for the consumers. So we have decided to keep it in the third slab (28 per cent out of already-decided four-slab structure in the historic tax reforms after the GST is rolled out from July 1 as different goods are fitted into different slab rates,” a senior Finance Ministry official told The Pioneer.
The Government has already approved goods and services rates which will fall into one of the approved four rate categories of 5, 12, 18 and 28 per cent, which is closest rate to the present incidence of taxation.
As for small cars, these vehicles currently attract a 12.5 per cent central excise duty with another 14.5-15 per cent VAT is levied by States, taking the total tax rate of 27-27.5 per cent. While mid-sized cars of up to 1500 cc are levied with a 24 per cent excise by the central Government and a 14.5 per cent VAT by the State Governments, taking the total tax rate at 38.5 per cent.
“We have decided an affordable slab rate at 28 per cent for these categories of cars (both small and mid-sized), excluding luxury ones. As small cars are very close to the affordable slab, mid-sized ones attract more tax rates in the current structure. But we are trying to bring it down to 28 per cent slab from total tax rate at 38.5 per cent at present rate. Besides, it will attract a little State compensation cess to take the total incidence closer to the current levels,” the official added.
The GST law provides for levy of cess on top of the peak tax rate on demerit and luxury goods like pan masala, tobacco and certain class of automobiles to create a corpus that will be used to compensate states for loss of revenue arising on account of the implementation of the GST in first five years.
The official, however, said a cess of up to 15 per cent is provided in the GST Compensation law and the final incidence of taxation would be arrived at adding the same to the peak rate. “The cess would be levied in a manner so as to keep the final incidence of taxation at close to current levels,” he said.
For SUV and bigger cars of more than 1500 cc, the current rates of taxation is 41.5 per cent to 44.5 per cent (comprising of 27-30 per cent of central excise and the remaining 14.5 per cent being state VAT). “These classes of vehicles would be put in the peak 28 per cent tax bracket and maximum 15 per cent cess,” the official said, adding that this would take the total incidence of taxation to 43 per cent. This means that for a select few vehicles, the tax incidence would be marginally lower than at present and would thus result in lower prices if the manufacturer passes on the benefit to the consumers.
Dubbed as the biggest tax reform since Independence, the GST is to unify at least 10 indirect taxes into one to be collected at State and central levels. Under the existing structure, the central Government levies a production tax, called excise duty, and the State Government charge a sales tax called VAT. Now, these two will unify in the one uniform tax.