In India, prices of small cars may reduce about 8 per cent if the government decides to bring down the current Goods and Services Tax (GST) rate from 28 per cent to 18 per cent, says HSBC report.
Passenger Vehicles
Passenger Vehicles (PVs) attract GST in the range of 29 per cent to 50 per cent, as highlighted by the report. Depending on the size and length of the vehicle, cess is imposed on top of the standard 28 per cent GST rate.
Large Cars & Small Cars
For larger cars, a "special rate" of 40 per cent could be introduced with the cess being cancelled. The government may consider reducing the tax on smaller cars to 18 per cent from 28 per cent, as noted by the HSBC report.
According to The Economic Times,"If this change takes place, smaller cars may see their prices come down by close to 8 per cent, while bigger cars could become cheaper in the range of 3-5 per cent."
The report stated that this would mean prices may come down for smaller cars by 8 per cent and bigger cars in the range of 3-5 per cent.
Domestic Players
From the GST reduction, all two-wheeler makers would benefit, according to the report. Domestic players would gain relatively more. On GST collections, the government could see an impact of around USD 4-5 billion.
GST Flat Reduction
Across all categories of cars, the report also discussed another scenario which is less likely to happen, according to The Economic Times. The scenario of a flat reduction in GST from 28 per cent to 18 per cent.
Vehicle Size Cess
In such a case, the cess based on vehicle size would continue, and all cars would see a price benefit of about 6-8 per cent. A flat 10 per cent cut would mean the government absorbs a revenue loss of around USD 5-6 billion.
