A number of other India-made luxury vehicles have also become lighter on the pocket, as manufacturers offer benefits ranging from price reductions and attractive financing schemes.
The Goods and Services Tax (GST) has been one of the key things that has caught the attention of the market given its implications on earnings of companies. The government has kept a large number of items under 18 per cent tax slab. The government categorised 1211 items under various tax slabs.
The automobile industry in India is a vast business producing a large number of cars annually, fueled mostly by the huge population of the country. Under the current tax system, there are several taxes applicable on this sector like excise, VAT, sales tax, road tax, motor vehicle tax, registration duty which will be subsumed by GST. Though it is too early to provide an in-depth analysis of cost per product post GST implementation, as some ambiguity still remains due to tax rates and incentives/exemptions provided by different states to the manufacturers/dealers for manufacturing car/bus/bike, our experts have taken the information available, and predicted the future of this industry once GST goes live in July.
This could be one of the best times to bring home your favourite luxury car. A Maybach, one of the most luxurious cars in the Mercedes-Benz line-up, will be in your garage for as much as Rs 7 lakh less compared with few days earlier if you are a buyer in Delhi.
The companies want to lure prospective buyers who could delay purchases expecting a price cut when GST comes into effect on July 1. That could hurt sales in the interim. Mercedes-Benz cut the price of the entire range of ‘Made in India’ vehicles by an average 4 per cent to cover the difference between the current ex-showroom prices and the expected price after the GST rollout.
Fellow German firm BMW has a slew of benefits on offer since May 19. Apart from the price benefits in accordance with new tax rates, BMW is offering customers financing at 7.90 per cent, complimentary service and maintenance of three years, free insurance for the first year, and assured buyback for up to four years.
Luxury carmakers step up sops to boost sales ahead of GST. Companies are adjusting prices by effecting discounts in transaction prices to maintain sales momentum. The offers and the adjustments are being made to ensure that customers do not hold up purchases till the time GST is implemented.
The GST Council decided to put cars and SUVs in the highest tax slab of 28 per cent. On top of that, there is a cess — 1-3 per cent on small cars and 15 per cent on large vehicles. The current levies on luxury vehicles are as high as 55 per cent, which means an up to 12 per cent drop in tax incidence on this segment. Manufacturers see GST as longterm positive.
“We strongly believe that GST will strengthen and foster growth in the country and benefit consumers at large,” Vikram Pawah, President of the BMW Group India said. “We are confident that our customers will enjoy value-enhanced benefits such as a lower rate of interest, assured buyback and complimentary service and insurance in addition to the GST benefits.”
At Mercedes-Benz, the price revision will be effective immediately on nine models assembled in India — CLA, GLA, C-Class, E-Class, S-Class, GLC, GLE, GLS and Maybach. The offer is aimed at providing value to a customer’s purchase decision before GST implementation, it said. The 4 per cent weighted average price reduction varies between 2 per cent and 9 per cent by state, and is dependent on the current tax structure and local body levies compared to the new GST structure.
“From the price perspective, there is quite a significant difference. The implementation of GST will benefit the economy and therefore also our industry,” Mercedes-Benz India Managing Director Roland Folger said. Mercedes-Benz is reducing the transaction prices immediately to pass on the benefits to the customer at an early stage, he added.
The company, which records nearly 43 per cent of its sales from Delhi and Mumbai, said the price reduction will be in the range of Rs 1-7 lakh in these two cities. In Delhi, for instance, the Maybach will now cost Rs 1.80 crore, compared with Rs 1.87 crore previously. The CLA 200 CDI, which cost Rs 32 lakh, will become cheaper by Rs 1.4 lakh, while the prices of the E-Class and GLC SUV both have been reduced to Rs 48.5 lakh from Rs 50 lakh.
Audi India didn’t provide details of any current offers and said it was still studying the impact of GST to understand the final effect on vehicle price due to the complexity of the value chain.
“However, we are confident on the business development in May and June,” said Audi India head Rahil Ansari. “We see quite some traffic in the dealerships due to the competitive offers we have launched in sales and service.”
Impact of GST on the Automobile Industry
The two taxes charged to the end consumer currently are excise and VAT, with an average combined rate of 26.50 to 44 per cent which is higher than the expected rates of 18 and 28 per cent under GST. Therefore, there will be less burden of tax on the end consumer under GST. There is still noImpact of GST on automobile industry clarity around tax implication on the sale of used cars under GST. Clarification is also required regarding the state provided incentive based schemes and their transition.
There is good news for the importers/dealers as they would be able to claim the GST paid on goods imported/sold whereas currently, they are ineligible to claim the excise duty and VAT paid. Excise paid on stock transfer will be covered by IGST under the GST law. Advance received for supply of goods will also be taxed under GST. GST would help the manufacturers in procuring auto parts at a cheaper cost due to an improved supply chain mechanism under GST.
Currently, there are a lot of free services/warranties offered by the car manufacturers due to the competitive nature of the industry. These free goods/services are not taxed under current tax laws. Under GST, the free services/ warranties would also be eligible for taxation.
Boost sales ahead of GST
Luxury auto companies are wooing buyers to ensure purchases are not deferred till GST roll out. Discounts and benefits like extended warranty, insurance are being offered.
Made in India models to see price reduction in the range of Rs 1-7 lakhs in Delhi and Mumbai.
Providing financing at 7.90 per cent three years complimentary service, free one year insurance.