In a move that could impact the resale market for old and used Electric vehicles, the GST Council’s Fitment Committee has recommended increasing the Goods and Services Tax (GST) rate on such vehicles from 12% to 18%. 

This proposed hike would also apply to old and used electric vehicles (EVs), which are currently taxed at the lower 12% rate under notification No. 08/2018-Central Tax (Rate), dated January 25, 2018.

Currently, old and used vehicles are taxed based on the supplier’s margin, making the effective tax incidence relatively low. The GST rates are as follows: 18% for petrol, LPG, or CNG-driven vehicles with an engine capacity of 1200cc or more and a length of 4000mm or more; 18% for diesel vehicles with an engine capacity of 1500cc or more and a length of 4000mm or more; and 18% for sports utility vehicles (SUVs) with an engine capacity exceeding 1500cc. All other vehicles, including EVs, attract 12% GST.

The Fitment Committee’s recommendation to raise the rate for these “other vehicles” to 18% aligns with the existing tax structure for larger vehicles and SUVs. While EVs currently enjoy a concessional 5% GST rate when sold new to promote the sunrise sector, their reclassification under the 18% slab when resold could make second-hand EVs less attractive to buyers.

Input parts and services used for the repair and maintenance of second-hand vehicles already attract 18% GST, which increases operational costs in the used car market. If the GST rate hike is implemented, the industry may face higher overall taxation on second-hand vehicle sales, potentially slowing down the demand in this segment.

The GST Council is expected to deliberate on this recommendation in its upcoming meeting to be held on December 20, and 21 in Jaisalmer, Rajasthan

Source: Business Today