GST: Luxury Cars And SUVs To Cost More As Cabinet Clears Compensation Cess Hike Ordinance
The quantum of cess on cars will have to be decided by the GST Council after discussion.
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- Cabinet clears ordinance to increase cess on luxury cars and SUVs under GST to 25% from 15%.
- GST cess hike ordinance only an enabling provision, Arun Jaitley says.
- GST Council to decide on actual quantum of cess hike.
- The Council may take up the issue at its next meeting on September 9.
- Increase in cess cap not across all category of cars, says Revenue Secretary Hasmukh Adhia.
The Union Cabinet on Wednesday cleared an ordinance to increase the maximum compensation cess for luxury cars and sports utility vehicles to 25 percent from 15 percent earlier as their tax burden has fallen under the Goods and Services Tax regime.
This is only an enabling provision, Finance Minister Arun Jaitley told reporters. It is now up to the GST Council to decide on the quantum of cess hike within the 25 percent cap. The Council may take up the issue at its next meeting on September 9.
The hike in the GST cess cap is not across all category of cars, Revenue Secretary Hasmukh Adhia clarified.
If the GST Council chooses to act following this ordinance, the prices of SUVs, mid-sized, large and luxury cars are likely to go back to pre-GST levels.
The ordinance is along expected lines, Pawan Goenka, managing director of Mahindra & Mahindra Ltd. said in a press release.
What is critical to the industry is when, how much and on what criteria will the cess be increased. Industry has made a representation to the government and we await the final decision.Pawan Goenka, MD, M&M
Terming it as an “unfortunate decision”, industry body Society of Indian Automobile Manufacturers said it the government’s intention clearly is to “increase the overall tax burden on many different categories of vehicles”.
All the vehicles that were attracting 24 percent or 27 percent excise duty in Pre-GST regime may potentially attract higher tax under the GST regime because of this decision. The hike in total tax could be as high as 10 percent in some cases.SIAM Statement
The GST Council had earlier finalised a highest cess of 15 percent on cars. Cess on cars earlier stood at 1 percent, 3 percent and 15 percent depending on the engine capacity and length. Cars with a length of over four metres and an engine capacity of over 1200cc but below 1500 cc attract a cess of 15 percent. The same quantum of cess is levied on cars with an engine capacity of more than 1500cc. The compensation cess is levied over and above the GST rate of 28 percent.
The total levy, including the compensation cess, on luxury cars and SUVs had come down under the new indirect tax regime compared to the pre-GST tax structure. The GST Council had considered the issue in its 20th meeting held on August 5 and recommended that the central government move legislative amendments required for increasing the cap on cess charged on such vehicles under the label 8702 and 8703 to 25 percent instead of the present 15 percent, an official release from the finance ministry had said earlier.
The increase in the compensation cess would ensure that taxes collected come back to the pre-GST levels, the ministry’s statement had added.
As a result, the move is unlikely to materially impact demand for the luxury cars and SUVs, Shrikant Akolkar, auto analyst at Angel Broking told BloombergQuint over the phone ahead of Jaitley’s press briefing. “The cess would mean that the car prices will come more or less to the pre-GST levels,” he added.
Ahead of the Cabinet briefing, Maruti Suzuki said any increase in taxes is likely to impact demand negatively. “The automobile industry is price sensitive, and every hike in prices impacts demand adversely,” Executive Director of Marketing and Sales RS Kalsi told BloombergQuint. Whether it’s a cess hike or cut, Maruti Suzuki plans to pass it on to customers, he added.
(With inputs from Krishanu Mukherji)