Good news for carmakers; tax across all categories is still lower than pre-GST levels
Dated NEW DELHI, September 18, 2017
The Goods and Services Tax (GST) Council, in its meeting held on 9th September, has hiked the cess on mid-sized cars (engine <1500cc) by 2%, larger cars (engine >1500cc) by 5% and that for SUVs by 7%. This takes the total tax incidence on these cars to 45%, 48% and 50%, respectively, and will lead to 1-4% price hike. However, cess on hybrid vehicles (for any category) has not been increased, which is a positive. In our view, the overall tax incidence across all categories (except hybrids) is still lower than pre-GST levels, which is a positive. Moreover, with the hybrid tax remaining unchanged, they would be cheaper by 1-4% compared to normal cars in similar segments and this would incentivise companies to make more hybrids depending on cost benefit.
Illustration- Segment wise price change based on revised taxes and cess rates (₹)
| Category | OEM,s ASP | Effective Taxes (Excise, VAT, Cesses) -(A) |
Other cost(Transpor- tation, Dealer Margin, Road Taxes, Insurance- (E) |
On Road Price Pre-GST (B) |
GST Rate (C) |
Cess (D) |
Price Post GST (E+C+D) |
% Price Change (on Road Price |
Revised Cess |
New Price Post Revised Cess |
% Price Change |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Small Cars (<4am length, engine <1500cc, Petrol) |
100 | 32.4 | 26.6 | 159.0 | >28 | 1 | 155.6 | -2.2% | 1 | 155.6 | 0% |
| Small Cars (<4am length, engine <1500cc, Diesel) |
100 | 34.2 | 27.0 | 161.1 | 28 | 3 | 158.0 | -2.0% | 3 | 158.0 | 0% |
| Mid size Cars (>4am length, engine <1500cc) |
100 | 49.2 | 30.0 | 179.2 | 28 | 15 | 173.0 | -3.5% | 17 | 175.0 | 1% |
| Mid size Cars (>4am length, engine> 1500cc) |
100 | 52.7 | 30.7 | 183.4 | 28 | 15 | 173.7 | -5.3% | 20 | 178.7 | 3% |
| SUVs (>4am length, engine> 1500cc) |
100 | 56.1 | 31.4 | 187.5 | 28 | 15 | 174.4 | -7.0% | 22 | 181.4 | 4% |
| Hybrids | 100 | 31.3 | 26.4 | 157.7 | 28 | 15 | 169.4 | -7.4% | 15 | 169.4 | 0% |
In our coverage universe, the tax difference between small cars and larger cars has inched up further, which should be positive for small car demand. Maruti Suzuki (MSIL IN), with ~92% of portfolio from small car segment, remains our top pick in the sector. Also, slightly lower tax on mild-hybrids will encourage OEMs like MSIL and M&M to continue rolling out more hybrid variants like those for Ciaz, Ertiga and Scorpio. We note the increase in cess is less than initial expectations of up to 10% hike. Prices of mid-sized cars and SUVs are still likely to be lower than pre-GST period by ~2-3% and this should benefit companies like M&M as well.
Source: /www.financialexpress.com/