The prices of new cars in the market have gone through the roof. With the increased prices of raw materials, manpower and higher taxes, owning a car have actually become quite expensive compared to the ownership costs a few years ago. While you might that it is the manufacturer that is becoming rich because of the increased prices of the cars, you’re wrong. Here is a video that explains how the Indian government earns Rs 18 lakh on every Toyota Fortuner sold in India while the manufacturer itself earns a mere Rs 45,000 per unit.
The video by CA Sahil Jain explains all the mathematics behind the margin incurred by the parties involved and who earns how much when you pay for a new vehicle.
Who earns how much for a new car?
The video explains that the cost paid by the customer of a vehicle is divided into three different parties. There is the manufacturer, the dealership and the government who earn profits on every car sold in India. The money that goes to the government is further divided between the state government and the central government. To show an example, here is a Toyota Fortuner that comes with a price tag of Rs 47.35 lakh, including insurance and road tax. Toyota, the manufacturer of the Fortuner earns only Rs 45,000 per unit.
A dealership can earn a margin of up to Rs 2 to 2.5% on each unit of the car. In the case of Fortuner, a dealership can earn up to Rs 1 lakh of margin, if there is no discount offered by the showroom.
How does government earn the most?
The major chunk of the money goes into the pockets of the government. The video explains how the government earns a whopping Rs 18 lakh on every unit of Toyota Fortuner sold in India. The amount is earned by GST.
There are two components of GST – 28 per cent and GST compensation of 22 per cent, which is about Rs 5.72 lakh and Rs 7.28 lakh respectively in the case of a brand-new Toyota Fortuner Other charges that make the government earn money include road registration tax, road tax, green cess and fast tag. With all the taxes, the government makes about 18 lakh on every unit of Toyota Fortuner sold in India. Now, this amount is further divided between the state and the central government. While we are not sure about the split, it looks like the central government earns the most whenever a new car is sold in the market.
With the onset of the COVID-19 pandemic, car sales have boomed in the market. With people preferring their own transport instead of shared transport like metro trains and buses, the sales of cars are slowly rising with time. With the rising demand and restrictions on semiconductors across the world, the waiting period of popular cars has crossed several months in India.