Car Prices May Drop if GST Cut to 18%: HSBC Report
Under a new structure, the government may consider lowering the tax on smaller cars to 18 per cent
New Delhi: The prices of small cars in India could fall by about 8 per cent if the government reduces the Goods and Services Tax (GST) rate from 28 per cent to 18 per cent, according to a report by HSBC.
The report noted that passenger vehicles (PVs) currently attract GST in the range of 29 per cent to 50 per cent, as a cess is imposed on top of the standard 28 per cent rate depending on the size and length of the vehicle.
Under a new structure, the government may consider lowering the tax on smaller cars to 18 per cent, while for larger cars, a "special rate" of 40 per cent could be introduced with the cess scrapped. This could bring down the prices of smaller cars by nearly 8 per cent, while bigger cars may become cheaper by 3–5 per cent.
The report also said that all two-wheeler makers would benefit from a GST reduction, with domestic players gaining more. However, such a move could impact government GST collections by around USD 4–5 billion.
HSBC further discussed another, less likely, scenario of a flat reduction in GST from 28 per cent to 18 per cent across all car categories. In that case, the cess based on vehicle size would continue, and all cars would see a price cut of about 6–8 per cent. A flat 10 per cent cut would mean a revenue loss of USD 5–6 billion for the government.