Reduction in GST Tax Rates Could Lead to Lower Costs for Motorcycles and Cars
India's New GST Proposal: A Boost for the Automobile Industry and Middle-Class Buyers
The Indian government has announced a new proposal to revamp the Goods and Services Tax (GST) system, aiming to provide relief to the automobile industry and middle-class buyers. The proposed changes include a significant reduction in tax rates for two-wheelers with engine capacity under 350 cc, which cover most daily-use motorcycles and scooters.
Currently, entry-level two-wheelers and small cars attract a 28% GST, the same rate as premium SUVs, hybrids, and luxury imports. This high tax burden has been criticized by industry leaders, such as Bajaj Auto's Rajiv Bajaj, who argues that commuter bikes, which are an affordable mode of mobility for millions, face the same 28% tax as a Hyundai Creta.
The new proposal aims to bring these vehicles down to the 18% slab, effectively cutting taxes by 10 percentage points. This reduction is expected to boost consumer sentiment and demand, potentially reviving sales in the two-wheeler segment and supporting manufacturers like Bajaj Auto, Hero MotoCorp, and TVS Motor.
The Maruti Suzuki WagonR, Hyundai Grand i10 Nios, Tata Tiago, commuter motorcycles from Hero, Bajaj, Honda, and TVS may benefit from the proposed tax cut. However, the impact of the GST changes on the pricing and affordability of various vehicles in the market remains to be seen.
Another mandate in the new proposal is that all two-wheelers under 125cc must come with Anti-Lock Braking System (ABS). While this move is aimed at improving safety, it will increase manufacturing costs. The higher manufacturing costs due to ABS will push up the base price of entry-level bikes.
The net savings for customers due to the GST reduction may be offset by the higher upfront cost of mandatory safety features. ASEAN countries levy just 8-14% tax on motorcycles, making Indian two-wheelers comparatively expensive, according to Bajaj Auto's Rajiv Bajaj.
The revamped GST system aims to simplify the slabs into two categories: 5% and 18%. This simplification is expected to reduce the complexity in the tax structure and make the pricing of vehicles more transparent.
In conclusion, the proposed GST changes could potentially bring relief to India's middle-class buyers and the automobile industry. However, the actual impact may be mitigated by the higher costs of mandatory safety features. Only time will tell how these changes will shape the automobile market in India.
