Luxury cars and sports utility vehicles (SUVs) are set to become dearer with the government today clearing an ordinance to increase the ceiling on cess to 25 per cent from the present 15 per cent over the peak rate of 28 per cent Goods and Services Tax (GST) on such vehicles.
The approval came at a Union Cabinet meeting chaired by PM Narendra Modi. According to the proposed ordinance that seeks to amend the Goods and Services Tax (Compensation to States) Act, 2017, the maximum compensation cess can be raised to 25 per cent. he decision to increase the cess on mid-size and large vehicles would be taken by the GST Council, Finance Minister Arun Jaitley said.
Earlier this month, the GST Council had recommended an amendment to increase the cess on all passenger vehicles with length above 4 m and engine capacity of 1,500 cc and above. Such vehicles currently attract GST of 28 per cent, besides a 15 per cent cess. The council is expected to take the final decision on September 9 and also decide the date from when the increased cess will be applicable. The move will adversely impact Mahindra & Mahindra, Toyota and luxury car makers such as Mercedes, BMW, Audi and JLR, the managements of which have already opposed such a move. The decision is also likely to impact the growth plans of the luxury car industry, which saw a flat performance in 2016, due to demonetisation and a ban on 2,000 cc diesel cars in the National Capital Region for the first eight months of the year.Most such vehicles had turned significantly cheaper after the introduction of GST on July 1. Toyota’s Fortuner turned cheaper by Rs 2.17 lakh and Innova by Rs 1 lakh. Most luxury cars had also turned cheaper by as much as 8-10 per cent. “The objective cannot be such that luxury items become cheaper,” the minister said. He said the issue of increase in effective rate of compensation cess on motor vehicles would be examined by the council in due course. 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, the total tax incidence came to 43 per cent after GST implementation.