India has the highest tax rate on vehicles

Mumbai, Ta. 22 September 2020, Tuesday

The Goods and Services Tax (GST) system levies the highest tax on vehicles in India as compared to other countries in the world. GST on cars and two-wheelers is 5 per cent and cess is levied at 5 to 6 per cent, leading to an effective tax rate of up to 50 per cent.

GST has been implemented in the country since July 2017 and with its implementation other indirect tax rates like excise, octroi, VAT etc. have been abolished.

Demands are being made to reduce the GST rate in view of the ongoing downturn in the auto industry but the Finance Ministry has earlier refused to accept it. A Finance Ministry official claimed that the GST rate was lower than the previous rates of VAT and excise duty.

The cost of owning a vehicle in India is the highest compared to major world markets. India is today the fifth largest market for vehicles in the world but sales of cheaper vehicles are more prevalent here.

At present, the number of vehicles per thousand families is 6 which is expected to reach 110 per 1000 families by 2020.

The country's auto industry, which has been in recession for the past two years, has long demanded a reduction in the GST rate. The tax structure on vehicles in the country should be made practical, said the head of sales department of a car company.

The rate of GST is applicable at the time of sale of the car, but the car buyer has to incur expenses including road tax, insurance charges, registration after taking delivery of the vehicle. Compared to India, countries like South Korea, Russia, UK, China, Germany, France where VAT is the main tax on vehicles have lower levels, according to figures from the European Automobile Manufacturers Association.