Proposed GST hike may not shake up used car market much

Mumbai: The GST Council’s proposed six-percentage point increase in goods and services tax rate on used small cars-those measuring less than four meters in length and powered with up to 1.2-liter diesel and petrol engines-as well as pre-owned small electric vehicles may not significantly impact demand for used cars, according to branded used car firms and analysts ET spoke with. The net impact could only be up to 1 per cent of the selling price of a used car, the executives said.With only a tenth of used cars sold annually being through GST-registered, branded used car platforms such as Maruti True Value, Cars24, Mahindra First Choice, Droom and Spinny, the net impact on the overall used car market will be minimal, said Sandeep Aggarwal, founder of Droom, an online marketplace for used cars.

For instance, if a dealer for Maruti True Value, the largest brand in the organised used car space, is buying a five-year-old Swift for Rs 4 lakh and selling it for Rs 4.25 lakh, which includes Rs 10,000 towards refurbishing the car, he will now have to pay a GST of 18 per cent on the margin of Rs 25,000 he earns as against the current practice of 12 per cent. His net tax outgo, therefore, will increase by Rs 1,500 to Rs 4,500 from Rs 3,000, which he may pass on to the buyer partially. On small used cars, typically dealers make a margin of 6-8 per cent.

“It will have some impact in the short term as the dealer will pass on the hike to the end buyer,” said Vikram Chopra, CEO, Cars24, another online marketplace for used cars. Chopra is worried that the GST hike can unintentionally impact affordability. A spokesperson for Maruti True Value was not available for comment.

“While the GST rate has gone up by 50 per cent on small used cars, the material impact may be negligible (1 per cent of the value of the product). Hence, it may not impact the pre-owned car market significantly in terms of demand nor will it impact replacement demand in case of new cars,” said Hemal N Thakkar, director at Crisil Market Intelligence & Analytics.

The proposed change will be applicable to small car models such as Swift, Hyundai i20, Baleno, and Tata Punch. Such vehicles comprise four out of every ten pre-owned cars sold. All used cars above four meters with engines that are larger than 1.2-litres already attract 18 per cent GST.Also, given the small contribution of EVs in the overall market, the impact of a GST hike will be negligible, said Aggarwal at Droom. “There may not be any impact on used EVs for another couple of years or so as the secondary market for used EVs has yet to develop. But the GST on used EVs isn’t in the same spirit as it’s for new EVs-the latter attracts only 5 per cent. Otherwise, why would you have a differential treatment for old and new?” he said.Nearly 5.1 million used cars were sold in the country in FY23, according to the India Blue Book Report released in May 2024. By FY27, the figure is expected to reach 8 million units, and by FY28, it is projected to cross the 10-million-unit mark, the report said.