GST Council recommends increase in cess for luxury cars

GST Council recommends increase in cess for luxury cars

GST Council recommends increase in cess for luxury cars

After 28 per cent GST, to maintain the pre-GST tax incidence, the highest compensation cess rate required will have to be 25 per cent, the fitment committee felt.

It recommended that Central Government may move legislative amendments to increase maximum ceiling of cess on motor vehicles to 25 percent from present 15 percent. Contradicting finance minister Dr Thomas Isaac's oft-repeated stand, CPM MLA Suresh Kurup said it would be naive for the state to set great store by the gains from taxing services. It has been estimated that price of luxury cars could go up by Rs. 72,000 to Rs. 2.58 lakh.

Following the government's proposal to increase GST cess on SUVs and high-end luxury cars, Audi has announced a number of offers for customers buying the Q3 SUV, A3 and A4 sedans in the country.

Mercedes-Benz India MD and CEO Roland Folger was unequivocal in his disappointment with the decision and said the move will have a negative effect on the company's long term strategy for India.

Mercedes-Benz, owned by Daimler AG, is one of the biggest luxury vehicle sellers in India, and a senior company executive said that the constant shift in policy in the country was making long-term planning for India "highly risky".

According to the German luxury auto maker, customers buying these three models can avail low EMIs, free first-year insurance and other "unbeatable" offers.

Further, Suresh Nandlal Rohira, Partner, Grant Thornton India LLP said: "The increase in compensation cess on luxury cars from 15 per cent to 25 per cent is purely an attempt of anomaly correction by the government on realising the revenue loss it would undergo". As a leading luxury auto maker, this will also affect our future plans of expansion under "Make in India" initiative.

"With this hike in cess, we expect the volumes of the luxury industry to decelerate".

The impact will be felt more by Mahindra & Mahindra, Toyota Kirloskar Motor, Mercedes Benz and Skoda which have a larger share of big cars in their portfolios. This proposed increase in cess will most definitely adversely impact the sales.

Audi India head Rahil Ansari also said they will be forced to re-evaluate their business plans.

There was absolute condemnation of the GST in the Assembly during the discussion on Goods and Services Tax Bill, 2017, on Tuesday. Currently, the levy on these vehicles, including the 28 per cent GST, adds up to 43 per cent, which will rise to 53 per cent once the law is amended.

Rajat Mohan, partner at consultancy AMRG & Associates, said: "We also have to acknowledge that chief economic adviser in his report recommended one demerit rate for luxury cars at 40 %..."

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