Synopsis: The government’s proposed GST reduction from 28% to 18% and removal of cess on automobiles could make cars cheaper, boost demand, and create jobs. Automakers like Maruti Suzuki and M&M are expected to benefit the most if the reform is implemented.
The upcoming reduction in Goods and Services Tax (GST) could reshape India’s automobile industry, spurring demand and generating employment, according to a new report by HSBC Global Investment Research.
Currently, automobiles are taxed at 28% GST plus an additional cess, which varies by vehicle size and type, pushing the effective tax burden for some cars to 50%. Under the new proposal, the 28% GST slab may be lowered to 18%, while the cess could be eliminated altogether.
Passenger vehicles (PVs) currently contribute $14-15 billion annually in GST collections, while two-wheelers add $5 billion. The proposed change could reduce car prices by 8% for small cars and 3-5% for larger vehicles, significantly improving affordability for buyers.
The report highlighted that Maruti Suzuki India Ltd (MSIL) would be a major winner, as 68% of its sales fall in the small-car category. Mahindra & Mahindra (M&M) is also expected to gain, though its larger exposure to electric vehicles may limit the relative benefit.
In a flat reduction scenario—where GST is uniformly brought down to 18% across all vehicle categories—prices could fall by 6-8% across the board. However, this would cost the government $5-6 billion in revenue, making such a move less likely.
A more radical scenario, involving both the slashing of GST to 18% and the complete removal of cess, would drastically simplify the tax structure but could cut government revenues by almost 50%, making it highly improbable.
If implemented, the GST cut would not only benefit car buyers but also stimulate long-term demand and job creation in the auto sector, one of India’s largest industries and employment generators.
Disclaimer: This article is for informational purposes only. The proposed GST changes are yet to be confirmed by the government, and actual policy decisions may differ. Readers should consult official announcements before making investment or purchase decisions.
