High GST rate: Cloud of uncertainty looms over used car industry

The cheer brought to the carmakers by the implementation of the nationwide tax structure is about to vanish. The government can anytime increase the cess by 10 per cent taking the tax on SUVs and luxury cars to as high as 53 per cent.

While the carmakers have been fighting their own battle after the proposed increase in cess, for the used car industry the sky was grey from day one. The used car market had clocked a healthy growth in recent years and at 3.87 million vehicles a year, it has outperformed the new car market of three million units. However, the organised players like Maruti Suzuki True Value, Mahindra First Choice and Gurgaon based super car dealer Big Boyz Toys (BBT) are only 10 per cent of the overall used car industry.

Under GST, the taxes have increased by 20 to 33 per cent which have made used cars expensive. Some of the players have already showed their concern over the issue and have talked to the GST Council to ease the tax rates on the used car. “With government setting up new tax rates under GST, Big Boy Toyz has directly been hit with regard to sales of luxury cars as all our models fall under the highest tax bracket of 43% (28% tax plus 15% cess). We along with other firms in the organized used car market have made individual and group representations to the GST Council to revisit the new tax structure. As under the new tax regime, business viability has been hugely impacted even if used cars do not attract the 15% cess like the new ones, as has been agreed to us by the Council,” said Jatin Ahuja, Founder and MD, BBT.

Earlier, the VAT on the sales of the used car varied from states. In Maharashtra, the VAT was 2.02 per cent while is states like Telangana and Andhra Pradesh it went as high as 14 per cent. However, they were no close to the current 43 per cent on the value addition made by the used car dealer.

Earlier, replying to some of the queries made by Business Standard, Nagendra Palle, CEO and MD, Mahindra first choice had said,” Given the high rate, it will have an impact in two ways –either consumers get less money for their cars when exchanged or when the dealers buy those cars they have to sell them for more to account for the taxes. And on the other hand, it will encourage the unorganized sector.”