GST or Goods and Services Tax came as a good decision for the Indian automotive industry. A number of segments witnessed a considerable drop in their ex-showroom price which includes the requisite tax. Cars categorised in the SUV segment as well as most other segments have seen a considerable drop in prices. Annoyingly though, hybrids are now more expensive while the tax on electric cars remains unchanged, which is really in tandem with the Government's vision of going all electric by 2030. While this is the story for new cars, what about pre-owned cars and how has the new tax structure affected them? First up is the fact that in the pre-GST times, used car dealers had to pay five percent VAT (Value Added Tax) on a car which is sold. The 'one country one tax' means a 28 percent tax would now be levied on the same used car.
Most dealerships may pass on this multi-fold tax burden to the customer which means that a potential used car buyer would now have to pay substantially higher. Take an example of a used Hyundai i20 Magna which is a 2009 manufacture year model with 21,000 km on the odometer with a used car dealer which was purchased by him/her for Rs 3 lakh . Before GST, the same car would attract a tax of five percent or Rs 15,000, however, now the same car would incur only tax of Rs 84,000. Add to this the profit margin which a dealer would also add to this price tag. So, a car could be purchased in the used car market for roughly Rs 3.50 lakh, would go well over Rs 4 lakh.
So, the crux of the matter is that while GST has proven to be positive for the new car segment, the used car category, which is also a sizeable chunk in India, would take a very negative hit. A dealer would have to increase the price considerably just to pass on the GST tax to a potential buyer considering there is no profit the dealer is making. And without any profit margin or inclusion of Capex and Opex, it would mean that his business would not be sustainable. When the overall perspective of GST is taken into account, it has worked in favour of the new car industry, a used car dealer will have to pay more tax and most likely, a used car buyer would also have to pay more for his new, but, pre-owned car.