Sales volume of two-wheelers to grow by 5-6% this tax after gst cut boost: crisil ratings

The sales volume of two-wheeler is expected to grow by 5-6 percent in the current tax year, due to the decision of the Goods and Services Tax (GST) to rationalize tax rates, Crisil Ratings said in a report.

The rating agency said that the relocation is expected to offer much needed incentive to the domestic car industry, in particular two-wheelers and passenger vehicles (PVs), which together represent almost 90 percent of the market volume.

The reduction of the GST rates is expected to yield a 200 basic points (BPS) in the demand of two-wheelers and an increase in 100 bps for PVs, the report added.

Turnover in the two -wheeler segment had suffered from this tax in the first quarter, especially in the commuters at entry level, due to disturbances resulting from the implementation of on -board diagnostics II (OBD2) standards.

Moreover, the early and intense start of the southwestern monsoon has limited the rural activity and muted consumer sentiment.

According to the rating agency, the growth in the PV segment is expected to be more modest with 2-3 percent this financial year. Affordability problems, shortages of rare earth minerals and purchase expenditures pending GST-taking cuts had contributed to a modest turnover during the period of June-August. Sensitive demand excection, simplified plates will also streamline compliance and lower logistics costs due to fiercer interstate taxes, supportive profitability about the value chain, the report added. “Now that the GST has been fully passed on, the vehicle prices are expected to fall by 5-10 percent (RS 30,000-60,000 on small PVs; RS 3,000-7,000 on two-wheelers). With the rate reduction coinciding with the Navratri and the festive season would get a timely boost. Anuj Sethi, Senior Rating.

Under the revised GST structure, the rates on small PVs, two-wheelers up to 350 cc (almost 90 percent of segment sales), commercial vehicles (CFS) and tricycle will fall to 18 percent of 28 percent.

Central and larger PVs will also see a reduction of 3-7 percent, while tractors will benefit from a reduction to 5 percent and 18 percent of 12 percent and 28 percent respectively.

For CVS, the lower GST should compensate for the costs of the compulsory AC cabin -requirement of October 1, 2025.

Motorcycles, on the other hand, more than 350 cc will be confronted with a higher levy, with a special percentage of 40 percent, compared to the current 31 percent, including compensation monitoring, making them more expensive.