Vehicles will be lease costlier in GST

GST to make vehicle lease costlier

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On an average, LeasePlan India, which has a fleet of around 13,000 vehicles, gets about 50 requests for a foreclosure every month.But during the last week alone, there have been over 200 requests and the company’s finance director Nitu Samrafears that there may be more requests this week.

At TranzLease Holdings India, which has a fleet of around 3,000 vehicles on the road, it’s a similar story. “We usually get one or two requests every month for foreclosure, but that number was close to 100 during the last one week,” said TranzLease president Hari Kaushik.

The worry arises from expected the goods and services tax (GST) regime as the tax burden, which is currently a value-added tax of 12.5-13%, will rise to 43%.

As a result, taxi aggregators such as Ola and Uber, which have leased over 25,000 cars between them, expect a similar rush next month onwards once drivers realise the GST impact on vehicles on the road. “At Ola Fleet Technologies, we run a leasing programme for tens of thousands of driver-partners who may not be able to afford buying a car of their own. At present, these driver-partners pay 14.5% VAT. In the proposed GST regime, they will have to bear GST rates of 29% to 43% on the cars already leased, as an outcome of double taxation on existing leases.This will have an adverse impact on their livelihoods, setting them back by over Rs 1 lakh for the remaining period of the lease, making it unviable to sustain their business,” said Shalabh Seth, chief executive at Ola Fleet Technologies, a wholly owned subsidiary of Ola.

The new tax will leave a big hole in the pockets of corporate executives too, many of whom drive leased vehicles to work. Calculations show that monthly lease cost could be as much as 27% higher for vehicles such as Honda City or Toyota Altis which have completed a quarter of the 48-month lease term (see graphic). LeasePlan India’s Samra said that the tax burden at the time of sale will also go up significantly. For instance, instead of the current tax of 13% on the sale of a Honda City that is returned, GST will be 43%. Hence, the tax burden on a Rs 4-lakh transaction will more than treble to over Rs 1.7 lakh instead of Rs 52,000 at present.

Clearly, the industry is nervous over massive losses on existing business. Industry sources estimated that nearly one lakh existing car leases will be impacted due to an additional tax burden of over Rs 2,000 crore on customers and companies. “For next four to five years, the leasing companies will incur huge losses on every single returned car they sell in the market, a shock which many of them won’t survive,” said an executive. Government officials said the issue will be taken up by the GST Council, comprising the Union and state finance ministers, although it is unclear if the decision-making body will have time when it meets next on 30th June 2017.

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