New Delhi: In a move to harmonize tax rates across different types of old and used vehicles, the GST Council has recently recommended a significant adjustment in the taxation structure. Since 2018, vehicles powered by petrol, LPG, or CNG with engines of 1200 cc or more, and diesel vehicles with engines of 1500 cc or more, have been taxed at an 18% GST rate. Electric vehicles (EVs), which were initially taxed at a lower rate of 12%, are now set to align with these rates at 18%.

This decision, made by the GST Council, which includes representatives from all state governments, aims to simplify the taxation system for dealers and consumers alike. The adjustment primarily affects registered businesses engaged in the trade of second-hand vehicles, rather than individual sellers or buyers from the general public.

The GST on these vehicles is levied only on the margin gained by the seller. This means the tax is calculated on the difference between the purchase price and the selling price of the vehicle. If a dealer buys a used car for Rs 5 lakh and sells it for Rs 6 lakh, GST would apply only on the Rs 1 lakh profit margin, not on the entire selling price. This margin-based taxation ensures that the tax burden is proportional to the value added by the dealer, a practice that was similarly implemented as 'Service Tax' during the UPA government and continued until the GST regime took over in 2017.

The rationale behind this taxation model is to treat the enhancement or value addition by dealers as a "service". This approach not only aligns with the principles of GST, which aims to tax services and goods at the point of consumption but also ensures that the tax is equitable and reflective of the actual commerce involved in the transaction.

This change, while bringing uniformity, might raise concerns about the increased cost for consumers interested in transitioning to electric vehicles. However, the impact is expected to be minimal since only the margin is taxed. Moreover, this policy might encourage a more transparent pricing mechanism in the used vehicle market, potentially benefiting consumers by making the cost structure clearer.

The GST Council's decision underscores a move towards a more streamlined and fair taxation system, aligning the tax on used electric vehicles with conventional vehicles, thereby removing previous tax incentives for EVs but promoting a consistent fiscal approach across the board.