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Merit-based GST slabs: Rationalization of GST rates for cars possible?

9th July 2024, 18:02 by Kanad Kalasur

We also miss getting a lot of global models in India due to the ridiculous GST rules that make them too pricey for the Indian market.

BHPian 84.monsoon recently shared this with other enthusiasts.

Toyota has thrown down the gauntlet once again, lobbying for GST rates on cars to be "merit based". Vikram Gulati, country head of Toyota Kirloskar has called for the GST council to relate GST rates more to emission levels and and fuel consumption goals rather than size of the car, size of the engine, weight of the car etc. To quote Mr. Gulati:

"Policies and taxation should be aligned towards the national goals (i.e becoming self-energy reliant and reducing carbon emission) and enabling consumers to make a better choice in terms of technology meeting those national goals.

https://www.newindianexpress.com/bus...d-toyota-motor

I could not agree with Mr. Gulati more. Taxing based on Engine size is such a retrograde method. The evolution of turbo charged technology means engines have got smaller, but their fuel efficiency has not really gone up relative to the NA engines they replace. Take a look at the Honda 1.5 iVTEC and the VW 1.0 TSI equipped cars (Honda City and Skoda Slavia) with MTs, which make comparable power output on paper. However, based on Autocar's real world mileage tests, the smaller turbocharged engine is actually less fuel efficient (11.2 KPL city, 14.2 KPL highway) than the larger NA engine in the Honda (11.5 KPL city and 17.7 KPL highway). Please see reference links below for these mileage test reports.

Taxing based on vehicle size is an equally bad idea. We get oddly shaped cars, that have been chopped off, just to comply to the 4 meter rule. For example, the XUV 3XO could have been a much more comfortable and spacious car without any major additional penalty in terms of emissions or FE, if M&M had not been forced to truncate it for GST benefits. Perhaps many families who have been buying the XUV 300 for years and are forced to do an upgrade to the next segment after a few years, only for want of space, could have been spared the expense. Fewer such cars that have been unnecessarily upgraded from, may have been on the roads via secondary market, if this market-distorting rule had not been in place.

Mahindra had to unwillingly lower the GC of the XUV500 in the past, to save a few percentage points on VAT/GST - this benefits no one, not the consumer, nor the environment, nor it results in any positive impact from reduction of oil import bills - it simply reduces the intended off-road functionality and capability without benefiting anyone at all. The lowered GC of the new ScorpioN also seems to be motivated by this logic. These forced moves also increase costs for manufacturers, as they have to design new tooling and sourcing, spend money on more repeated testing cycles, for modifying trivial vehicle characteristics, just to meet artificial tax structures.

We also miss getting a lot of global models in India due to the ridiculous GST rules that make them too pricey for the Indian market, while in fact they are only very marginally above the 4m threshold. For instance, after the massive success of the 2010 VW Polo, the next generation Polo was never launched in India, as it was marginally above 4 meters long, but would have become too expensive due to the distorted GST structure we have.

The benefits of strong hybrids are immense, including 40-80% increase in FE, and a significant possibility to cut down on oil import bills, as well as reduction of pollution in our big cities. The global trend has become clearer over the last 4-5 months - slow down in growth of pure EVs and steep growth in strong hybrids. I was in Germany and France for 2 weeks and literally every taxi was a Toyota strong hybrid (Prius/Camry/Corolla) or a Lexus ES300h. The thus-far-ubiquitous E class diesel is dwindling in their taxi fleet. At least 30-40% of newer private passenger cars seemed to be strong hybrids from a range of manufacturers.

Now is the time for the government to do a complete review and overhaul of GST structures for cars, based on the principles of taxing vehicles with lower real world FE and higher emissions more, so that the taxation can be used positively towards the larger cause of reducing environmental pollution and reducing over-reliance on oil imports and saving foreign exchange outflows by cutting our oil import bill. The market leader Maruti, for once, will be supportive (only because they find themselves, for once, at an advantage via-a-vis competition, thanks to Toyota, on hybrids - Maruti would never, I mean NEVER, otherwise support any progressive emission-reducing or safety-increasing measures or regulation). Hyundai and Tata are going to cry foul, this is to be expected as they do not have a play in strong-hybrid Technology. I do not think the government will give much credulence to Hyundai's position, as it was apparent from Nitin Ghadkari's previous remarks that the government is unhappy about "some carmaker's" strategy to reduce strength and safety specifications of its global cars when it comes to launching them in India. Tata's opposition will be formidable, but as a group, there may be some other TATA line of business (e.g. Air India) that the government can incentivize as a trade-off. So, all-in-all, there is a fair chance of pushing this rationalization through and getting India's taxation on autombiolies more in line with rational principles and global practices adopted by countries that attach equal importance to reduction of fossil fuel consumption and environmental pollution reduction as Mr. Ghadkari does.

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Here's what BHPian shortbread said in this matter:

Mr. Gulati, I fully understand that like any committed employee, you're campaigning for your company's cause, but let's look at it from a different perspective?
Is it simply GST the reason why the Innovas and Fortuners have such stratospheric prices? If there's any GST reduction, one can be quite sure it will only lead to fattening Toyota India's hefty margins than any benefit being really passed onto the consumer.
Plus if other manufacturers are able to engineer products around regulations, why cant Toyota? Should all nations formulate rules as per Toyota's product lineup?
Ultimately for what real benefit to India? Toyota is only focussed on selling Innovas and Fortuners in India and rest of the business is supplemented by selling rebadged Marutis. Out of the 60-70 model lineup you have globally, India gets 2 or 3, that's it. Neither are you really interested in pushing India as an export base, all that favouritism is directed at Indonesia, Thailand etc... If that's all the commitment you can show to the Indian market, do not expect a lot of love in return.

Meanwhile, here's what BHPian sh3lby added:

Apologies for this off-topic post but in terms of GST I implore the govt. to please remove the 'luxury goods' GST of a whopping 28% on ACs, in this life-threatening weather (45 degreeC + in NCR), while nothing is being done to reduce the effect of global warming atleast make ACs cheaper in the meantime so more people can afford them and live in comfort.
I am well aware of the cyclic effects more ACs will have on the temperature but I do not care anymore.

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