Centre approves GST cess hike: SUVs, luxury cars to cost more

Bad news for a luxury car or SUV buyers as the Union Cabinet has approved an ordinance for raising the goods and services tax (GST) cess to 25% from 15%. According to the GST regime that was introduced on July 1, all vehicles attract a cess of 28 per cent. But in case of cars and SUVs with an engine capacity bigger than 1,500 cc and SUVs longer than 4 metres, additional cess of 15 per cent is charged, which will now be increased by a further 10 per cent.

The GST Council, which sets the GST rates, had on August 5 approved a proposal of increasing cess on SUVs, mid-sized, large and luxury cars to 25 per cent, from 15 per cent. For raising the cess, it requires an amendment to the Schedule of Section 8 of the GST (Compensation to a State) Act, 2017, which the council had recommended to the central government at that time. The Council’s next meeting is scheduled to take place on September 9 in Hyderabad, where the panel will decide on the date when the newly increased cess will be applicable.

GST first kicked in on July 1 which allowed car makers to reduce prices by a couple of thousand rupees for affordable cars like a Maruti Alto 800 to Rs 1 lakh - Rs 3.5 lakh for luxury cars, after they received benefits from the government's decision to revise the structure. But now it seems likely that the manufacturers may pull the plug on these benefits.

Earlier, speaking to the media after inaugurating Mercedes-Benz’s seventh AMG Performance Centre in the country, Mercedes-Benz India, Managing Director, Roland Folger, said that the situation may go back to "square one" due to levy of cess for large cars and Sports Utility vehicles if the government does not intervene. The Mercedes-Benz India head has further explained in his column in the latest September autoX issue that this newly proposed hike, combined with an increase in road tax rates, will effectively take the price points well above the pre-GST prices.

The Head of Audi India, Rahil Ansari, has also recently released his statement on the matter saying, “The taxes on this industry are already very high and this increase in cess rate will be detrimental to the luxury car industry as we will be forced to hike our prices to levels higher than the pre-GST period. This is bound to adversely impact sales by possibly a double-digit reduction and will consequently reduce revenues for the company, dealers and perhaps also tax revenues for the Government. While the overall impact will still have to be evaluated in some time, we will be forced to redraw our plans for the Indian market based on future projections in this scenario. We request the GST Council to carefully evaluate the negative impact on this and, if a decision is taken on a 10% cess increase, postpone the implementation for another 6-12 months to evaluate the real impact of the GST on the automobile sector, in particular, the luxury segment. This will surely prove that the overall effect with a lower cess percentage of 15% is generating higher tax revenues than expected.”

After the Centre’s approval of the GST cess hike for cars, Rohit Suri, President and Managing Director, Jaguar Land Rover India commented on the decision by saying, “The GST implementation on 1st July removed the cascading impact of multiple taxes applicable in the pre-GST regime, which we understand was one of the primary objectives of the Government. The removal of the cascading impact enabled the Industry to reduce prices and benefit the consumer as well as expand the market, which had been declining because of high taxation. The expansion in demand would have enabled further investments in local manufacturing and job creation across the supply chain including more people in factories, showrooms, workshops and logistics service providers. We earnestly hope that the Government and the GST Council will give due consideration to this matter and desist from raising the cess and putting a dampener on the positive momentum in demand that the industry had started to witness since 1st July.”