Small cars may get cheaper by 8% if GST reduced from current rate: HSBC Report

The prices of small cars in India could see a reduction of about 8 per cent if the government decides to bring down the current Goods and Services Tax (GST) rate from 28 per cent to 18 per cent, according to a report by HSBC.

The report highlighted that in the present structure, passenger vehicles (PVs) attract GST in the range of 29 per cent to 50 per cent, as a cess is imposed on top of the standard 28 per cent GST rate depending on the size and length of the vehicle.

HSBC noted that under a new regime, the government may consider reducing the tax on smaller cars to 18 per cent from 28 per cent, while for larger cars, a "special rate" of 40 per cent could be introduced with the cess being cancelled.

ALSO READ: Big GST cut may rev up demand for small cars, hatchbacks likely to attract 18% tax against 28% now

If this change takes place, smaller cars may see their prices come down by close to 8 per cent, while bigger cars could become cheaper in the range of 3-5 per cent.

The report stated "This would mean for smaller cars prices may come down by 8 per cent and for bigger cars in the range of 3-5 per cent".

The report also mentioned that all two-wheeler makers would benefit from a GST reduction, with domestic players gaining relatively more. However, the government could see an impact of around USD 4-5 billion on GST collections in this scenario.

The report also discussed another, though less likely, scenario of a flat reduction in GST from 28 per cent to 18 per cent across all categories of cars.

In such a case, the cess based on vehicle size would continue, and all cars would see a price benefit of about 6-8 per cent. A flat 10 per cent cut would mean the government absorbs a revenue loss of around USD 5-6 billion.