Buying a car may become much cheaper if the government implements a standard tax rate of 17-18% for most number of goods and services recommended by a panel.
Analysts say that car manufacturers, who pay 30-50% as tax currently, will likely cut prices significantly once the tax reform is approved.
"The automobile sector could benefit significantly from Goods and Services Tax (GST) if the government accepts the recommendations of the GST panel and puts automobiles (except luxury cars) in the general category of standard goods and services with a rate of 17-18 per cent," said Sanjeev Prasad of Kotak Institutional Equities.
At present, the government levies 30.4% tax on small cars having length of less than 4 metres and engine size below 1500 cc. The tax includes an excise duty of 12.5%, central sales tax of 2%, national calamity contingent duty of 1% and value added tax (VAT) of 12.5%.
If the GST become effective, small car prices may come down by 12% to 13%, as the manufacturers may just need to pay a tax of 17 -18%.
"As GST would subsume all taxes, a standard rate of 17 per cent would mean that prices could come down by over 10 per cent," NDTV Profit quoted Kapil Singh and Siddhartha Bera of Nomura, as saying.
Lower taxes will not only benefit small car buyers but also could bring down the prices of luxury cars despite a proposed tax of 40% under GST.
Once GST is implemented, prices of luxury sedans could fall by 4-5%, while prices of sports utility vehicles (SUVs) can drop by 10-12%, according to analysts.
Appealing for early passage of the GST bill, Mahindra Group chairman Anand Mahindra said on Tuesday that failing to implement the bill will divide the country and thwart it from becoming a common market.
While the Modi government wants to implement the GST from April 1, 2016, the bill is facing strong opposition in the Rajya Sabha, where it does not have a majority.
