New Delhi : The Cabinet Wednesday cleared promulgation of an ordinance to increase the cess on mid-size, large cars and SUVs from current 15 per cent under the new GST regime. The proposal before the Cabinet was to hike the cess rate on these cars to 25 per cent. “The proposal of imposition of higher cess has been cleared,” a source said after the Cabinet meeting.
The GST Council had on August 5 approved raising cess on SUVs, mid-size, large and luxury cars that had become cheaper post GST rollout on July 1. But raising the cess requires an amendment to the Schedule of section 8 of the GST (Compensation to a State) Act, 2017.
The highest pre-GST tax incidence on motor vehicles worked out to about 52-54.72 per cent, to which 2.5 per cent was added on account of Central Sales Tax, octroi etc. Against this, post-GST the total tax incidence came to 43 per cent. So, to take the tax incidence to pre-GST level, the highest compensation cess rate required is 25 per cent. Prices of most SUVs were cut between Rs 1.1 -3 lakh following the implementation of GST, which subsumed over a dozen central and state levies like excise duty, service tax, and VAT from July 1. With the increase in cess, the cuts will be reversed. Under GST, a cess was levied on demerit goods like cars, tobacco, and coal to
create a corpus for compensating states for any loss of revenue from their taxes like VAT being unified with central levies like excise duty and service tax in the GST.
Cars attract the top tax rate of 28 per cent. On top of this, a cess of 1 to 15 per cent is levied for the creation of the state compensation corpus. The GST Council, the apex tax rate setting body under the Goods and Services Tax (GST) regime, may in its next meeting on September 9 decide on the date when the increased cess will be applicable.
To impact growth, say auto firms
Automobile firms, including Mercedes-Benz, Audi and JLR, Wednesday said the proposed hike in cess on luxury cars and SUVs will adversely impact growth momentum of the segment. They also criticised the government’s “hurry to implement the hike in cess” saying a review could have been taken after six months when impact of GST would have been clearer. “This decision, contradictory to the requirement of creating a sustained demand for the luxury car in this market, would rather affect the growth momentum adversely,” Mercedes- Benz India MD & CEO Roland Folger said. The automotive segment has not even settled in to see the effect of the marginal relief in terms of rationalisation of taxes in the GST regime, he added. Folger further said the auto industry attracts one of the highest rate under the GST and even without the proposed increase the luxury segment is already highly taxed, which constrains its growth.
Maruti Suzuki’s Kalsi says co to up prices
Maruti Suzuki India Ltd will raise prices of its cars if the government hikes the cess on automobiles under the goods and services tax, R.S. Kalsi, executive officer – marketing & sales, Wednesday said. “Whenever there is a change in taxes, we have to pass it on to customers. If there is a reduction, we reduce prices, and if there is an increase, we raise prices,” Kalsi said on the sidelines of a company event. Kalsi’s comments come on the back of the Cabinet’s approval to raise the ceiling on compensation cess on motor vehicles to 25% from 15%, as the total tax incidence on them has fallen following the introduction of the Goods and Services Tax. Under the new indirect tax regime, the effective tax rate on many cars, especially sport utility vehicles and large sedans, had come down despite most of them being put in the maximum tax and cess brackets of 28% and 15%, respectively.
