Auto companies shares were down after the GST Council finalised that cars will attract the top tax rate of 28% as also a cess in the range of 1 to 15 per cent on top of it. The BSE Auto index was trading 1.45 per cent down in afternoon trade. Share of Maruti Suzuki was trading 1.60 per cent down, Tata Motors was trading 0.18 per cent down and Mahndra and Mahindra was trading 1.06 per cent down during the same time down.
The new rates finalised by the GST Council during a two-day meet in Srinagar puts all cars, buses, trucks and motorcycles including moped as well as personal aircraft and luxury yachts to fetch a Goods and Services Tax (GST) of 28 per cent. The cars and SUVs, as well as motorcycles of over 350 cc engine capacity, will also attract an additional cess. The cess for motorcycles with more than 350 cc engine has been kept at 3 per cent, taking the total incidence of taxation to 31 per cent. The council has finalised 1 per cent cess on top of the peak rate on small cars of less than four meter length and with petrol engine of up to 1200 cc. Small diesel cars with engine of less than 1500 cc will be charged 3 per cent cess. Mid-sized cars, SUVs and luxury cars will all attract 15per cent cess, same as that for buses and vans that can carry more than 10 persons. Hybrid cars of more than 1500 cc engine would also attract 15 per cent cess.
The GST rates for all but six items were finalised at the first day of the two-day meeting in Srinagar of the GST Council, headed by Union Finance Minister Arun Jaitley and comprising state representatives. Out of the 1,211 items, the GST rate for all but six was decided on the first day.
Brokerage House Nirmal Bang said after the finalised GST rates that they are on expected lines for bigger cars, but the cess on small cars is a surprise. It said, “Cess at 1 per cent-3 per cent on small cars will be absorbed by the market as we have seen with excise duties being increased by 2% in the past. Current tax rates on small cars amount to around 29%. Other automobile segments like two-wheelers are at 28% rate which is slightly lower than the existing indirect tax rates on two-wheelers. Motorcycles with engines of more than 350cc and above will attract 3% cess. However we understand that the current tax incidence for Eicher Motors is 31% and hence a 28% GST plus 3% cess will be neutral.”
It further added that we don’t expect major impact for four wheeler auto stocks as the GST plus cess for most auto segments is closer to the existing indirect tax rates. While for two-wheeler stocks, the rate is slightly below the indirect tax rate, although in line with expectations of 28% tax rate.