The GST Council has announced that there would be a reduction in the taxes for second-hand vehicle transactions to make used cars much more affordable. This had been announced at the meetings held on January 18, 2017. The tax used to be 28 percent, which had been reduced to 18 percent for the large cars and the SUVs. For the smaller cars, it had been reduced to 12 percent. The new rates would be coming into effect from January 25, 2018. The Society of Indian Automobile Manufacturers had urged the government to reduce the tax under the GST, which had been welcomed and would revive the demand for the second-hand cars.
The demand for the pre-owned vehicles has been declining following an increase in the applicable GST rate in July 2017. The dealers in about 70 percent of the states had to pay higher taxes after the GST became applicable. The taxes were much less in the old VAt regime according to a study by a vehicle pricing guide.
The CEO and MD of Mahindra First Choice Wheels, Nagendra Palle, had commented that the reduction in taxes would be providing impetus to the growing pre-owned car market. The effective GST was somewhere around 29 percent to 53 percent if the cess is included. The used cars were not being considered separately. There are fundamental differences between the new car industry and the used ones and they were not being considered separately. The organized sector would be growing at a rate of 25-30 percent.
The revised tax rates would also help the pre-owned luxury and sports car segments and will also boost the confidence of the customers. The GST rate of 48 percent was not practical, considering the 20 per cent cess. With the revised rates, the expected demand is to pick up and there is a plan of extending operations. The online automobile marketplaces would also exhibit an increase in the market size.