The 21st Council meet, and the second since the implementation of GST, put its stamp on a long pending issue by raising total tax on mid-size cars from 43 to 45 %.
The GST Council, headed by finance minister Arun Jaitley, on Saturday announced that there would be no change in tax for small cars. “There will be no additional burden on those buying small cars. There will be a status quo on tax rates on 1,200 cc petrol and 1,500 cc diesel cars,” he said.
But for those planning to buy a bigger car, it is not as pleasant. The 21st Council meet, and the second since the implementation of GST, put its stamp on a long pending issue by raising total tax on mid-size cars from 43 per cent to 45 per cent.
While the mid-segment may cost less, the big car segment has seen a drop in tax from 43 per cent to 48 per cent. On the other hand, the SUV segment too has been nudged to a higher tax bracket. The total tax on SUVs would now be 50 per cent instead of the previous 43 per cent. The tax on passenger carrier vehicles and larger vehicles has been left untouched.
The automobile industry, in its representations to the government, had sought a differential hike formula which included low increase for mid-sized cars. The argument was that a hike in the segment would hit the middle class which is currently the driving force in the auto market.
After the July 1 GST rollout, the industry had slashed prices in the upper-end segment of cars like Mercedes Benz, BMW, Audi, Jaguar and Volvo to attract more buyers. Car prices had fallen by up to Rs 3 lakh as tax rates fixed under GST from July 1 was lesser than the combined central and state taxes before GST.
The GST Council had at its last meeting approved an increase in cess from 15-25 per cent as part of an amendment in the compensation law. Due to the increase in cess rate, the overall tax incidence on various cars is as follows:
- Small cars, hybrid cars and 13-seater vehicles: No change
- Large cars: Tax up by 5 per cent
- SUVs: Tax up by 7 per cent
- Mid-size cars: Tax up by 2 per cent
Total tax incidence on different segments:
- Mid-size cars: 45 per cent
- Large cars: 48 per cent
- SUVs: 50 per cent
The overall tax incidence remains at 50 per cent and below.
For the masses, the GST Council brought more joy. Ahead of the festive season, the tax rate on clay idols, incense sticks, saree falls, walnuts and khadi sold at KVIC outlets have been exempted. The council has put broom, custard powder, idly-dosa batter, rubber bands, raincoats, corduroy fabric, computer monitors, table and kitchenware in the exempted from the levy of tax category.
In a move to streamline taxation of branded packaged food, a new framework was finalised at the meet. Jaitley, briefing the media after the meeting, said, “Food items sold in open was categorised at zero per cent tax rate while the branded ones attracted 5 per cent tax. Some businesses were deregistering their brands and selling under corporate brand names, creating inequality of trade, so we amended the rule”.
Explaining the amended list of rules for the exempt and taxable food items, the finance minister said, “If you fall in either of two categories, you will pay 5 per cent tax- one, if on May 15, 2017, you had a registered trademark. Two, if you have a mark or a name on which you are entitled to maintain actionable claim or exclusivity”.
This was a ticklish issue about which the government was getting reports from the ground. To avoid 5 per cent GST on branded pulses, cereals and flours, food items were being put in unit containers bearing a registered brand name.
Also, businesses were deregistering brands post GST to avoid taxessince food items that are not branded are exempt of tax while branded and packaged food items attract 5 per cent rate.
With the amended rules even if a brand is deregistered after May 15, 2017 cut-off date it will be considered as a registered brand for the purpose of GST levy. Inhouse brands of large retailers too will fall in the 5 per cent tax slab.
The GST Council meet also provided relief for handicraft makers. Handicraft traders who sell their produce to other states with annual turnover below Rs 20 lakh do not have to register.
“Overall GST collections have been robust with over 70 per cent of eligible taxpayers filing returns of about Rs 95,000 crore,” Jaitley said during the media briefing.