Auto industry is one of the most highly taxed sectors. In addition, owing to the long, complex supply chain, there is cascading of taxes and tax costs associated with inter-state transactions. Implementation of GST, even with no change in rates, will result in significant savings.
At current proposed rates (12% merit, 18% std, 40% luxury cars), most segments will likely see a price reduction of 7-10%. Mid sized cars could see more.
There are three taxes imposed on autos today which will be subsumed into GST (a) excise duty, imposed by the central government on production and collected at the factory gate, (b) central state tax of 2% collected by state governments on any inter-state transaction, be it components or final product and (c)
VAT imposed on the final selling price.
VAT is imposed on all other taxes as well, resulting in cascading of taxes. Effective tax rates, as a % of value addition, ranges from c15% in case mof tractors to 54% in the case of large SUVs.
In addition, states impose road tax which will remain outside the ambit of GST. There will be several changes in terms of processes, cash flows and rates under GST. All central and state government indirect taxes, excluding road tax and import duty, will be subsumed under GST.
There would no more be any distinction between assessment value on which taxes of central or state are imposed. It will be on the basic value added and therefore avoid cascading. There would be no distinction between inter-state or intra-state sales.