You go to a restaurant to have a good meal and get a checkoff, let’s say, Rs.2000. But what do you find? Approximately 30-40% of it is just taxes of various kinds.
Similarly, taxes are charged in the car industry – when the car moves from point of manufacture to point of sale in a different state, registration taxes, sales tax, etc.
Cars are manufactured in one state, however, their actual sale takes place in a different state in the majority of the cases. One tax after another gets added to the cost of the car and leads to tax cascading.
To put it in simple terms, tax cascading is when the tax is levied at every level in the supply chain without any deduction/benefit at the preceding level.
As we all know, the Goods and Services Tax (GST) bill has been passed and is expected to be implemented from April 2017.
With the GST, the Government plans to do away with all different kinds of taxes at various levels and levy a single tax which will be creditable to the manufacturer.
This will further lead to lesser complications in the existing tax structure and will also help bring down the cost of the commodities, especially passenger cars.
The effective tax is expected to be down to ~18-20% from the current 27%. However, speculation is that this will happen for all cars except luxury which will have a higher rate of tax.
In a nutshell, the whole economy will be treated as a single market removing indirect taxes to bring in the GST.
Operational efficiency and compliance are expected to increase while overall prices of different goods would go down.
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