Indian Car Owners Face 58 % Tax Burden: Details
We all are aware that taxes are a huge part of car ownership; however, many people might get shocked when they hear that they pay 58% of their cars’ cost to the government as taxes. When all taxes are accounted for, Indian car buyers end up paying this huge figure of 58% of their total car ownership costs to the government. This hefty tax burden is a result of a combination of direct and indirect taxes that cumulatively inflate the cost of owning a vehicle. Here are the details.
Image courtesy GSTNewsInfo
Breakdown of Car-Related Taxes
Let’s start off with buying a car, according to Rohit Saran from TOI, when you buy one in India, there are a number of primary taxes that contribute to the total 58% tax burden.
These include Goods and Services Tax (GST), road tax, registration fees, and the cess imposed on automobiles. Each of these taxes adds layers of cost to the purchase and ownership of the vehicle.
The GST rate on cars varies depending on the vehicle’s type and size. For instance, small cars attract a GST rate of 28%, while luxury and sports utility vehicles (SUVs) are taxed at 43%. These include a cess on top of the standard GST rate. This initial taxation significantly increases the purchase price of the car.
In addition to GST, car buyers must pay a one-time road tax that ranges between 4% and 20% of the vehicle’s cost, depending on the state of registration. This tax is intended for the maintenance of public roads but adds a substantial amount to the overall cost.
Apart from this, there are registration fees, which are necessary for legally driving the car on Indian roads. This further increases the expenditure. These fees mostly vary from state to state but typically account for another significant percentage of the car’s price.
Ongoing Costs and Indirect Taxes
You may think that taxes and costs end there. However, the financial drain doesn’t stop at the point of purchase. Car owners continue to pay taxes in the form of fuel excise duties and toll charges. Excise duty on petrol and diesel is among the highest in the world, making fuel considerably expensive.
This not only affects the daily running cost of the car but also adds to the cumulative tax burden over the vehicle’s lifetime. Toll taxes are another recurring expense for car owners, with an increasing number of highways and expressways transitioning to toll-based maintenance.
The cost of using these roads can add up quickly. These tolls are essentially a user fee, but they contribute to the overall tax percentage that car owners pay.
Comparison with Global Standards
Comparatively, car owners in many other countries with higher income tax rates face lower indirect taxes on vehicle ownership. In countries like the United States and several European nations, the combined taxes on car ownership are generally lower, resulting in more affordable car prices.
Broader Issue for Indian Car Owners
The heavy taxation on car ownership is just one facet of the broader tax burden borne by the Indian middle class, particularly salaried employees. Unlike their non-salaried counterparts, salaried individuals cannot easily evade taxes or exploit loopholes.
Their taxes are deducted at source, leaving them with little flexibility in managing their taxable income. This high tax burden is not matched by corresponding public services. Indian taxpayers, including car owners, often pay out of pocket for essentials such as healthcare, education, and even basic utilities like clean water and air.
Need for Equitable Tax Reforms
The current taxation system places an inequitable burden on car owners and salaried employees, making it necessary for policymakers to consider reforms.
Addressing the high indirect taxes on car ownership could alleviate some of the financial pressures on the middle class. Simplifying and rationalizing the tax structure could also ensure a fairer distribution of the tax burden across different income groups.