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Published: Thu, August 10, 2017
Research | By Jennifer Evans

GST Council hikes Luxury vehicle cess by 10 percent

GST Council hikes Luxury vehicle cess by 10 percent

The council has made a decision to hike the cess on luxury vehicles from the current 15 percent to 25 percent. The stocks of M&M and Tata Motors fell 1.3% and 1.07%, respectively, on Monday. Now the government plans to increase cess from 15 percent to 25 percent.

M Swaraj (CPI-M) said that state government should not believe the promise of the center that it would compensate the losses to the state in the wake of implementation of GST.

"Although, it would take away the luxury for higher segment vehicle buyers with an additional tax burden of 10 per cent, however such frantic changes and corrections for each sector may convulse the confidence of the Industry and also lead to re-planning of their sales strategy and cost impact thereon".

Once the rates of 150 items have been released, more items would be added later.

In a move that has caught the auto industry by surprise and, in some cases, shock, the government has recommended an amendment to increase the cess on all passenger vehicles above four meters and with an engine capacity of 1,500 cc and above. "The process of rate adjustments might continue", Satya Poddar, senior tax adviser at EY, told a TV channel.

The Schedule to the GST (Compensation to State) Act, 2017, now specifies 15 per cent as the maximum cess rate for motor vehicles.

Exchoing a similar sentiment, Mercedes-Benz India Managing Director and CEO Roland Folger stated, "As a leading luxury carmaker, this will affect our future plans of expansion under "Make in India", which aims at making and selling world-class products in India, with the latest technology for end-consumers".

While manufacturers with larger portfolios of mid-segment, large cars and SUVs have protested vociferously, analysts say automakers' strategies may shift toward small petrol and diesel vehicles, which still stand to gain some tax benefits. "As a leading luxury vehicle 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", Folger said.

The Kerala Goods and Services Tax Bill, 2017, was introduced in the state assembly on Tuesday and referred to the subject committee for pursuance. The hike in cess will make them fall in the luxury vehicle segment.

The proposed move also underlines the need for long-term roadmap for the industry which has been at the receiving end of arbitrary policies, he said. Ansari said the proposal to further increase cess would dampen the spirits of workers and employees, besides hitting companies, dealers, and customers. So it is for prospective buyers of vehicles in these segments.

After GST was put in place, auto companies had cut prices of most large cars and SUVs by Rs 1.1 lakh to Rs 3 lakh.NEW DELHI: India is unlikely to allow the total tax incidence on midsized cars, large cars and SUVs to exceed 50%, which means imposing a cess of less than 25%.

SUVs and luxury cars are likely to get expensive as the GST Council that oversees the implementation of the goods and services tax (GST) has recommended raising the cess, which is levied over and above the base GST rate, on SUVs and luxury cars from 15 per cent to 25 per cent.

He was in fact referring to the 2% hike of road cess by Maharashtra government just days after introduction of the GST regime, touted as the biggest economic reform in post-Independence India.

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