The cess levied on sports utility vehicles and luxury cars under the Goods and Services Tax (GST) regime is set to rise to 25 per cent from 15 per cent with the Council having authorised the Centre to make the necessary legislative changes to increase the maximum limit of cess leviable on motor vehicles. The decision was opposed by luxury vehicle manufacturers, who claimed that the move was against the spirit of liberal market dynamics and would affect future plans of expansion under ‘Make in India’ initiative. The issue was considered in the 20th meeting of the GST Council on Saturday as the fitment committee of the GST recommended an increase in cess after the SUVs and luxury cars had become cheaper after GST rollout. However, the decision regarding the timing of the implementation of the raise in cess on cars will be taken by the GST Council in “due course”, the finance ministry said.
Under the new GST regime, a tax rate of 28 per cent is levied on cars along with cess of 1-15 per cent, which will flow into the compensation fund that has been created to compensate states for revenue loss from implementation of GST. The finance ministry, in a statement, said that after introduction of GST, the total tax on motor vehicles (GST plus compensation cess) has come down vis-a-vis the total incidence in pre-GST regime. “The GST Council considered this issue in its 20th meeting held on August 5 and recommended that the central government may move legislative amendments required for increasing the maximum ceiling of cess leviable on motor vehicles falling under headings 8702 and 8703 to 25 per cent instead of the present 15 per cent,” the statement said. “The decision on when to raise the actual cess leviable on the same will be taken by the GST Council in due course,” it added.
Toyota Kirloskar Motor, Mercedes-Benz, Audi and BMW were unanimous that increase in cess on large, luxury cars and SUVs that had become cheaper after GST rollout would dampen the spirits of the industry across the entire value chain. The companies also said a constant shift in policy makes long-term planning for the market highly risky, and it would only have an adverse impact on India’s financial ratings. Mercedes-Benz India MD and CEO Roland Folger said the company was highly disappointed with the move and it would 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,” he said in a statement.
Expressing similar sentiments, Audi India head Rahil Ansari said: “We will be forced to re-evaluate our business plans in light of this development. This move unfortunately is against the spirit of liberal market dynamics and we can only request to reconsider this proposal.” BMW Group India president Vikram Pawah also said that long-term stability in tax reforms and regulations are of paramount importance to foster growth of any industry in the country. He further said: “While BMW Group India welcomes the implementation of the Goods and Service Tax (GST) in India, immediate changes and fluctuations on motor vehicles cess will adversely affect the stability and growth of the automotive industry in India.”
The increase in compensation cess will require amendment to the Schedule to section 8 of the GST (Compensation to a State) Act, 2017. The motor vehicles that fall under headings 8702 and 8703 include mid-segment, large cars, SUVs and motor vehicles which can carry more than 10 persons, but less than 13. Also, hybrid vehicles with over 1500 cc engine and mid segment hybrid cars of less than 1500 cc fall in the category. The GST Fitment Committee, which is responsible for calculating the tax rates on various goods and services, at its meeting on July 25 had felt that the total tax incidence in GST seems to have come down vis-a-vis pre-GST total tax figure. 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 CST, octroi etc. Against this, post-GST, the total tax incidence came to 43 per cent.