Govt passes bill to increases GST cess from 15% to 25% on luxury cars and SUVs
Higher GST rates are slated to push up prices of luxury cars in the new year.
Lok Sabha has passed bill to introduce higher GST taxes on Luxury Cars, which will result in an increased selling price. The plan is approved to increase taxes from the present 15% upto 25% so as to correct an anomaly that has risen after new GST rates were announced.
Yes, it was an anomaly that GST applied on expensive cars were reduced as compared to previously liable taxes. Many had spoken about this strange situation where expensive cars were levied a lower GST cess. That will soon be fixed.
If you are an enthusiast, you would have noticed that there were tonnes of articles written about how prices of multiple cars in India had been lowered due to GST roll out. Now, all these cars will become more expensive, probably even more expensive than in the pre-GST era.
This new change is going to disappoint some of the brands in India. Audi India has shared the below statement –
“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 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.
The luxury car industry in India, while small in volumes, still contributes over 10 percent in value. While the segment definitely needs more positive initiatives from the Government to be able to deliver a bigger contribution to the Indian economy, this scenario is clearly a setback.
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.” – Mr. Rahil Ansari, Head Audi India.
GST Tax Structure for Cars in India
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Mr. Roland Folger, MD & CEO, Mercedes-Benz India had this to say about the latest amendment in GST Law.
“We are highly disappointed with the decision. We believe this will be a strong deterrent to the growth of luxury cars in this country. As a leading luxury car maker, this will also affect our future plans of expansion under ‘Make in India’ initiative, which aims at making and selling world-class products in India, with the latest technology for end consumers. We feel deprived as the leading manufacturer of luxury cars in India, who has been championing ‘Make in India’. This decision will also reverse the positive momentum that the industry wanted to achieve with the introduction of GST. With this hike in cess, we expect the volumes of the luxury industry to decelerate, thus offsetting any growth in the potential revenue generation, that could have come with the estimated volume growth.”
“This decision once again reiterates the need for a long-term roadmap for the luxury car industry, which has been at the receiving end of arbitrary policies. The constant shift in policy makes our long-term planning for the market highly risky, and we think this would only have an adverse impact on the country’s financial ratings. By making better technology more expensive, the Government is causing more damage to the environment and slowing down the overall growth pace of the country’s economic growth, which it is striving to achieve.”
Mr. Folger further added, “One of the original benefits expected out of GST was rationalization of tax rates. Luxury cars and SUVs are one of the segments that long required tax rationalization, as this segment remains highly taxed. Further, in the pre-GST regime, the taxes to the final customer were varying widely from state to state depending on the VAT applicable in respective states. Also, one month is too short a period to consider an upward revision in rates. The market performance should have been watched for at least 6 months, before it was relooked. The current proposal of increase in Cess clubbed with the increased road tax rates, will take the effective consumer price much above the pre GST scenario level.”
Goods and Services Tax Council made the latest GST announcement related to SUVs and luxury cars. Rates may not go up immediately as certain changes in GST law will have to be implemented. Raising the levy on SUVs is aimed to help the government counter protests over hybrid vehicles facing the same taxes as compared to more polluting vehicles. These higher taxes will also result in higher compensation fund to make up for losses incurred by states following GST roll out. SUVs and luxury cars had been placed at a maximum levy of 40% before GST was implemented.
Small vehicles will continue to attract 28% tax and 1% cess. Bikes will attract 3% cess on engine capacities of 350-500cc. Petrol cars under 4 metres of length and upto 1,200cc engine attract 1% cess, while diesel cars upto 1,500 cc attract 3% cess. Auto manufcaturers reduced car prices after GST roll out so as to pass on reduction to buyers. Some automakers had to raise prices of small cars after cess was imposed on them.
GST council has just approved and issued an amendment to the GST law. This will make way for an increase in rate of compensation cess levied as has been indicated by a Government official aware of council deliberations, which took place on Saturday.