In a move that had been anticipated for past few days now, The GST Council on Saturday decided to increase the Cess on mid-size and luxury cars along with SUVs.
There has been no change in Cess levied on cars up to 1,200cc (in case of petrol) and 1,500cc (in case of diesel), as well as hybrids and 13 seater cars.
Those planning to buy a midsize car will now have to pay 2% more to the government, while luxury car buyers will have to shell out 5% extra and the prospective SUV buyers will now have to pay 7% more.
Luxury, as well as mid-size car prices were reduced prior to the introduction of GST by their respective manufacturers, anticipating a reduction in taxes. However, this move will likely prompt manufacturers to raise prices again, to nearly pre-GST levels.
Mr. Roland Folger, MD & CEO, Mercedes−Benz India had this to say about the increase in Cess on luxury cars and SUVs, “The decision to increase the Cess yet again is very unfortunate and totally overlooks the contribution we make to the industry and to the economy. Though luxury car industry’s volume contribution is very low, our value wise contribution is much higher and that has immense potential to grow even more in the future, had there been fair taxation. However, by continuous taxation of the segment, the overall revenue generation is going to be hurt, as the increase in price is going to hurt demand. It seems the contribution of luxury car industry to the total PV market in India will remain constricted, though in the other developed economies, it is on a higher side and continues to rise gradually. With this increase in Cess now, the prices are bound to leap back to the pre-GST regime, in some cases higher than the pre-GST regime, thus negating altogether the benefits of GST regime. ”
Thankfully, the GST Council did not heed to Government’s plan to increase Cess by 10%, which was widely expected.
Even though this move is expected to raise more revenue for the government, this is likely to send a wrong signal to investors, as it amounts of policy flip-flop, coming just a couple of months after the introduction of GST in India.