Auto companies are bracing for a rough ride with the Cabinet clearing an ordinance to raise the cess cap on mid-size, large, luxury cars and sports utility vehicles to 25 per cent from 15 per cent.
This cess will be over and above the peak goods and services tax (GST) rate of 28 per cent on these vehicles. The exact rate of ‘compensation cess on motor vehicles’ will be examined by the GST Council, when it meets on September 9.
Explaining the rationale behind the move, Finance Minister Arun Jaitley said: “The object of any taxation policy can’t be that luxury becomes cheaper and an essential item becomes more expensive... A person who can afford ₹1 crore for a car can also afford ₹1-2 lakh.”
Pre-GST, the tax incidence on cars ranged from 52 to 55 per cent (excluding 2.5 per cent tax due to central sales tax and octroi). Currently, the levy on these cars is 43 per cent, including the 28 per cent GST. But post the new ordinance, it would become 53 per cent, which many luxury car makers fear would hit the industry.
Already taxed “The taxes on this industry are already very high and this increase will be detrimental to the luxury car industry as we will be forced to hike prices to levels higher than pre-GST period,” said Rahil Ansari, Head, Audi India.
Many foresee a double-digit drop in sales revenues and a cascading effect on dealerships and, ironically, on the Government’s tax revenues, too. “We hope the government and the GST Council will give due consideration to this matter and desist from raising the cess and putting a dampener on the positive momentum in demand the industry had started to witness since July 1,” said Rohit Suri, President and Managing Director, Jaguar Land Rover India.
Pawan Goenka, Managing Director, Mahindra & Mahindra, said the ordinance move is along expected lines. “What is critical is when, how much and on what criteria the cess will be increased. The industry has represented to the government and we await the final decision.”
The Society of Indian Automobile Manufacturers (SIAM) termed the government move contradictory. On the one hand it has identified the automotive industry as a sunrise sector, but on the other it is treating vehicles as demerit products.