Prices of small cars in India could fall by nearly 8 per cent if the government reduces the Goods and Services Tax (GST) on them from the current 28 per cent to 18 per cent, according to an HSBC report.
At present, passenger vehicles attract GST between 29 per cent and 50 per cent, as access is levied in addition to the standard 28 per cent tax depending on a vehicle’s size and length.
HSBC suggested that under a revised structure, the government may cut GST on smaller cars to 18 per cent while introducing a special flat rate of 40 per cent (without cess) for larger cars. This would translate into a price reduction of around 8 per cent for small cars and 3–5 per cent for bigger vehicles.
The report also noted that two-wheeler manufacturers would benefit across the board from a GST reduction, with domestic companies likely to gain more. However, such a move could result in a revenue loss of USD 4–5 billion for the government.
A less likely alternative discussed was a uniform GST cut to 18 per cent across all categories, with the cess continuing. In that case, all vehicles could become 6–8 per cent cheaper, but the government would face a higher revenue impact of USD 5–6 billion.
