Second Hand Cars No Longer Affordable 18% Gst Will Impact Pre Owned Car Market

18% GST: Second-Hand Cars No Longer Affordable? Will Impact Pre-Owned Car Market

GST Council Hikes Tax on Used Cars to 18%: What It Means for the Pre-Owned Car Market

The Goods and Services Tax (GST) Council’s recent decision to raise the tax rate on used cars from 12% to 18% has sent ripples through the pre-owned car industry, sparking concerns among industry leaders and stakeholders. Announced on December 21, this move aims to align tax rates for used cars with the broader vehicle tax structure. However, many fear it could have significant implications, particularly for businesses in Tier 2 and Tier 3 cities.

Key Changes to the GST on Used Cars

  • Higher Tax Rates: Previously, certain vehicles were taxed at 12%. Now, under the revised structure, an 18% GST rate will apply to:
    • Petrol, LPG, and CNG vehicles with engine capacities of 1200cc+ and lengths exceeding 4000mm.
    • Diesel vehicles with engine capacities of 1500cc+.
    • SUVs with engines exceeding 1500cc.
    • Older electric vehicles (EVs) when resold by businesses.
  • Exemptions for Individuals: The new Goods and Services Tax rate applies only to businesses involved in the resale of vehicles. Individual sellers and buyers remain exempt and can continue transacting at the previous 12% rate.

Impact on the Pre-Owned Car Sector

Car Key

Concerns Raised by Industry Leaders

Industry experts argue that this tax hike could negatively affect the second-hand car market, which is a crucial segment of mobility for India, especially in smaller towns and cities.

Vikram Chopra, Founder of Cars24, expressed concerns, saying,

“Used cars are the backbone of mobility for millions of Indians. They fuel economic growth, support small businesses, and contribute to a circular economy by extending vehicle lifecycles. Increasing taxes is not the way forward.”

He emphasized the need for policies that promote sustainable practices, such as responsibly dismantling end-of-life vehicles and incentivizing greener options.

High Maintenance Costs Add to the Burden

Pre-owned vehicles already come with higher maintenance and repair costs, which attract an 18% Goods and Services Tax (GST) on spare parts. The increased tax rate for vehicle resale could further elevate the operational expenses, making second-hand vehicles less affordable for the average consumer.

Challenges for the Used EV Market

The tax hike could slow the adoption of electric vehicles (EVs) in the second-hand market, which is already underperforming compared to new EV sales.

  • Current Market Data: According to the Society of Manufacturers of Electric Vehicles (SMEV), four-wheeler EV sales surged by 90% in FY24, reaching 90,432 units compared to 47,499 units in FY23.
  • Low Resale Value: Despite this growth, EVs struggle in the resale market due to limited demand. The higher Goods and Services Tax (GST) rate might further discourage buyers from opting for second-hand EVs.

A Growing Industry Faces New Hurdles

The pre-owned car market in India is evolving rapidly:

  • Market Size: In FY23, India sold 51 lakh used cars worth $34 billion.
  • Future Growth: By FY28, the market is projected to reach $73 billion, with sales expected to hit 1.09 crore vehicles.

However, analysts warn that the increased Goods and Services Tax (GST) rates could slow this growth. The current margin-based tax system has been pivotal in making used cars more affordable. With the higher tax burden, affordability could decline, impacting both businesses and buyers.

Broader Implications

The tax hike could deter second-hand vehicle purchases, especially in markets where affordability is a key factor. Businesses may pass on the additional costs to consumers, further straining budgets.

While aligning Goods and Services Tax (GST) rates for used vehicles with broader policies is a step towards standardization, the industry urges the government to reconsider the implications of this decision on the pre-owned car market and its contribution to the circular economy.

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