Automotive & GST-Part 1

History classes have acquainted us with the fact that when the British did something it was not out of kindness. When the first railway line was laid down it was so that the British could mobilize their troops. The roads were left in various undeveloped states because they didn’t serve any immediate military advantage. Modes of transport other than bullock carts could be afforded only by the rich and elite and the first time a car graced the Indian streets was in 1897. Pre-independence India was a market for imported vehicles where Indian automobile companies usually undertook servicing, dealership, financing and maintenance of vehicles which were flown in from other countries.

It was only a decade after Independence that the manufacturing concerns were set up in India. After many years of unfavorable government policies, the Indian government and the private sector came together to build an automotive component manufacturing unit to meet the increasing demands. The production of passenger cars was limited to 40,000 for nearly three decades after independence.

From that, the Indian automobile industry has gone on to become one of the largest in the world. It accounts for 7.1% of the country’s gross domestic product. The booming population obviously needs its chariot and to cater to this demand, different types of cars and bikes are produced annually. All the divergent automotive types will obviously attract different tax rates. Goods and Services Tax has subsumed previous taxes like excise, VAT, sales tax, road tax, motor vehicle tax, and registration duty on car and bikes. Day 2 of GST launch saw major luxury car manufacturers announcing price cuts. TVS Motors also reduced prices of its models by up to Rs 4,150. There are many bifurcations and assessing GST’s impact for all of them at the same time would be a daunting task (for the readers not me, pff).

Therefore, for the day we will be studying the change Goods and Services Tax will bring about for the two wheelers.

Two wheelers have been classified into two categories for the purpose of taxation under GST – those with the engine capacity of less than 350 cc and those with the engine capacity more than 350 cc. Earlier, motorcycles with engine capacity less than 350 cc would attract a levy of 30.2%. Under the new tax regime, the tariff on motorbikes would be 28%. This means the prices of bikes like Bajaj Pulsar NS200, Honda CB Hornet and Suzuki Gixxer SF will fall marginally.

On the other hand, two wheelers above 350cc engine displacement will be levied at 28% along with 3% cess as compared to the earlier 30.2%. The ex-showroom prices of Royal Enfield bikes above 350cc have witnessed a steep jump ranging from Rs. 2,500 to Rs. 3,700 (I can hear loyal hearts breaking). Although, I’d like to mention that the prices of popular models like Classic 350, Bullet 350 and Thunderbird 350 have reduced between Rs. 75 and Rs 90! What a time to be alive!

The government introduced the anti-profiteering clause to ensure that the benefits should be passed on to the end consumers in the way of price reduction. The importers/dealers and manufacturers will be able to claim credit on goods imported/sold. However, changes can also be seen on the service side with the tax rates for spares going up to 28% which is 3% more than the previous rates. A higher labor charge in turn will lead to increase in the final bill after servicing. Also, the registration and insurance charges are expected to rise.

All in all, it seems to be a mixed bag for the two-wheelers segment of the automotive industry.