Cabinet Approval to Higher GST Cess to Increase Luxury and SUV Car Prices

The Cabinet Today cleared the Compensation Cess Hike Ordinance that will increase the tax levied on luxury and SUV car prices. Earlier the cess percentage was 15 but now it will be 25%. Here is the detail coverage on this story.

Increase in Cess will push the Tax Levied equal to the Pre-GST Prices

In our earlier article, we covered the announcement of August 05, 2017 that there will be increase in existing cess by 10% for the luxury and SUV car prices. Earlier the cess levied was 15% on SUV and Luxury cars while the small and sedan car had to pay 1% and 3% of cess. The base rate of GST on all kinds of cars is 28%. The addition of cess is levied on cars based on their nature. As the cess is increased, now the SUV and Luxury category cars will have a tax base of 28% + 25% of cess totaling it to 53% which is near about same to pre-GST rates.

Before GST was implemented, the rate for small and sedan car was around 43-49% while SUV and luxury cars attracted 49-55% of tax. Now the highest tax levied under GST will be 53% which is somewhere same as previous.

Setback for Automobile Industry and Car Buyers?

The Finance Minister said that this is only an enabling provision and only GST council will decide the quantum of cess hike within 25% cap. The Revenue Secretary said that not all car models will fall into the 25% cess cap. The mid-sized, luxury, SUVs and hybrid cars are most likely to get affected by the hike in cess. Cars that are considered to fall in these categories have engine capacity of 1500 cc or more and 4 meters or more length. The increase in cess is certainly going to affect the automobile business that has enjoyed the market since the last 2 months.

Pawan Goenka of Mahindra & Mahindra said that they have already made a presentation to the government regarding this and are waiting on what criteria will the cess be increased. Mahindra manufactures most of its car in SUV range. Executive Director of marketing and sales, RS Kalsi of Maruti Suzuki said that such hike in cess will definitely have negative impact on the automobile market which is quite price sensitive.

“We feel deprived as the leading manufacturer of luxury cars in India,” said Roland Folger, managing director and chief executive, Mercedes-Benz India.

Luxury car makers like BMW, AUDI, Mercedes Benz, Porsche, Land Cruiser and their likes will definitely have negative impact on their luxur and SUV Car prices. Especially the hybrid models will also suffer who have come out as an alternative for traditional cars. The decision taken by the GST council on September 09, 2017 will make it clear that which car model will cost much and which model will cost less.