The nationwide derision and meme fest over ‘caramel popcorn’ apart, another of Finance Minister Nirmala Sitharaman’s latest GST googlies could end up having quite the reverse effect — market pundits voice the very real fear that the proposal to increase GST on sale of used cars from the present 12 per cent to 18 per cent could well push more such sales into the grey market.
Presently, as much as 42 per cent of used car consumers buy or sell via informal channels, and this could simply shoot up, warned a survey by LocalCircles.
The GST council meeting in Jaisalmer this weekend had proposed aligning the tax on the sale of used cars, be it internal combustion engine cars which were taxed at 12 per cent, or electric vehicles which were charged at 12 per cent to a uniform 18 per cent.
But as a survey released late last night points out, this could adversely impact trade through formal and online channels, as the revised rate applies to vehicles sold with a margin and purchased by businesses claiming depreciation. On the other hand, individuals selling or buying pre-used cars will continue to be taxed at the lower 12 per cent rate.
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With established car makers like Maruti Suzuki and Hyundai also entering the scene along with technology companies, the used car market has ballooned in the recent past. According to the Indian Blue Book Report, the used car organised market is presently above 32 billion dollars and expected to hit 73 billion dollars in four years.
On an average, cars get sold in India four times, taking the informal sector transaction to 70 per cent, according to LocalCircles.
The percentage of growth in resale is even higher in the luxury vehicles market, where many owners discard their vehicles after a year or two to upgrade to a better model. LocalCircles survey showed that among those who buy or sell used cars, seven in 10 said they do not use any online channel, while three in 10 said they buy or sell within their close social network. The survey was conducted crunching data from 23,000 responses from across 288 districts in India.