GST cess hike on cars from today: Luxury, large cars, SUVs get expensive

Business Standard By Press Trust of India September 11, 2017 09:15 IST

Auto companies may pass on impact of cess increase to buyers

Representative image

The increased Goods and Services (GST) cess on mid- sized, luxury and SUV cars will come into effect on Monday.

The GST Council on September 9 decided to hike cess on mid-sized cars by 2 per cent, taking the effective GST rate to 45 per cent.

"Notification regarding increase in the effective rates of the Compensation Cess on specified motor vehicles will be issued on September 11, 2017, effective from 00 hours the same day," the Central Board of Excise and Customs (CBEC) tweeted.

After the GST Council meet on Saturday, Finance Minister Arun Jaitley had said that in large vehicles where affordability of consumers is high, the cess has been increased.

"The pre-GST rate has not been restored... Even though we had a headspace of hiking cess by 10 per cent, it has been hiked by up to 7 per cent," Jaitley had said.

Cess on small petrol and diesel cars, hybrid cars and those carrying up to 13 passengers has not been hiked.

Car prices had dropped by up to Rs 3 lakh as the tax rates fixed under the GST, which came into effect from July 1, were lower than the combined central and state taxes in pre-GST days.

To fix this anomaly, the Council raised the cess.

Under the GST regime, cars attract the highest tax slab of 28 per cent and on top of that, a cess is levied.

An ordinance was promulgated last week to hike the cess from 15 per cent to up to 25 per cent.

The council on Saturday decided on the quantum of hike in cess in various segments.

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 and the like. Against this, post-GST, the total tax incidence came to 43 per cent.

With the revision in cess quantum, now the anomalies have been removed to a greater extent.

Automakers such as Mahindra and Mahindra, Toyota Kirloskar Motor, Audi, Mercedes-Benz and JLR India are planning to pass on the increased cess on mid-sized and large cars along with SUVs, after the Goods and Services Tax (GST) Council's decision to raise it by up to 7 per cent.

The companies said the constant changes in rates could lead to market instability and affect demand growth trends, expressing disappointment that the Council's decision "totally overlooked" their contribution to the industry and the economy.

"Following the ordinance on the GST amendment, we note the increase in the cess from 2-7 per cent on mid-, large- sized cars and SUVs. We see the prices of our products going up proportionately, which may nearly reflect the pre-GST scenario... However, we are ascertaining the real price impact on our models, given the cess hike," Toyota Kirloskar Motor Vice-Chairman and Whole-time Director Shekar Viswanathan said in a statement.

"These constant changes could lead to market instability and thus dampen the spirits of the industry across the entire value chain," Viswanathan added.

Mahindra and Mahindra MD Pawan Goenka said: "We are awaiting the exact definition of the categories. Whatever is the impact of the increased cess will reflect in the revised pricing from the effective date."

He further said: "We are grateful that the Council has very thoughtfully not raised the cess to the maximum level that had been enabled by the ordinance."

The council has basically restored pre-GST relative excise duty differentials between the various categories of vehicles. The hybrid vehicle cess has not been increased, effectively giving these vehicles a 2-7 per cent cess relief, he added.

According to BMW Group India President Vikram Pawah, while the company welcomes the implementation of the GST in India, immediate changes and an increase of motor vehicles cess adversely affect stability and growth of the automotive industry in India.

Others like Audi, Mercedes-Benz and JLR India have also expressed disappointment over the GST Council's decision to hike cess on mid-sized and large cars and SUVs by up to 7 per cent.

Under the new rates, cess on mid-sized cars has been increased by 2 per cent while on large cars, it has been hiked by 5 per cent and that of the SUVs by 7 per cent.

The council, however, kept rates on small cars and hybrid vehicles unchanged, which were approved when GST was implemented in July.

Reacting to the hike in cess, Audi India Head Rahil Ansari said: "Even if the rumoured cess hike of 10 per cent was not concluded, the prices will go up again, which is disappointing. We will need to study the impact of this hike on the buyer sentiment."

He further said the taxes on the auto industry are already very high and "we expected the unfulfilled potential of this segment to increase after the implementation of GST and rationalisation of taxes".

Expressing similar views, Mercedes-Benz India MD and CEO, Roland Folger said: "The decision to increase the cess yet again is very unfortunate and totally overlooks the contribution we make to the industry and the economy."

Though the luxury car industry's volume contribution is very low, the value-wise share is much higher and that has immense potential to grow even more in future if there is "fair taxation", he said.

On the impact on prices of vehicles, he said: "With this increase in cess now, the prices are bound to leap back to the pre-GST regime, in some cases higher than the pre-GST regime, thus negating altogether the benefits of GST regime."

Under the new rates, popular mid-sized cars like Honda City, Maruti Suzuki Ciaz petrol and the newly launched Hyundai Verna will see price increase by 2 per cent.

Similarly, luxury cars such as BMW 3, 5 and 7 series, Audi A3, A4, A6 and A8 along with Mercedes C Class, E Class and S Class will now get more expensive by 5 per cent.

SUVs, starting from Scorpio and XUV500 from the stable of Mahindra and Mahindra, Renault Duster, Toyota Fortuner to luxury ones like Land Rover Discovery, Audi Q3, Q5 and Q7, BMW X3 and X5, along with Mercedes GLA, GLC and GLS will all see prices going up by 7 per cent.

In the earlier approved rates, large cars with engine greater than 1,500 cc and SUVs with length more than 4 metres and engine greater than 1,500 cc attracted cess of 15 per cent.

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