It was barely a week ago that the Jeep Compass was launched. The Sport Utility Vehicle came in at a jaw-dropping ₹14.95 lakh.
Like Toyota’s Innova Crysta and Fortuner, Hyundai’s Creta and Mahindra’s XUV 500, the SUV attracted a 43 per cent tax levy — 28 per cent GST and 15 per cent cess.
All this will now change with the GST Council greenlighting a 25 per cent cess for large SUVs and luxury cars. This is expected to come into effect in the weeks ahead but has clearly been a short-lived honeymoon for automakers, who were betting big on sales.
It will be a big blow to companies such as Mahindra & Mahindra, Toyota Kirloskar Motor, BMW and Mercedes, whose core area of business centres around SUVs and luxury cars. Others, such as Hyundai and Honda, will also be affected since this cess applies to all models that are over four metres long, with engine capacities exceeding 1.2 litres (for petrol) and 1.5 litres in the case of diesel.
However, SUVs such as Vitara Brezza, Ford EcoSport and the upcoming Tata Nexon, which are under four metres in length and within the engine capacity limits, will see no change in their overall levy structure. M&M also has its share of sub-four metre SUVs, such as the KUV 100 and TUV 300.
The silver lining is that the price hikes are not going to be implemented immediately since the appropriate notification will have to follow. This is small consolation for the auto sector, which will be sorely disappointed with the way the entire script has played out.
Manufacturers will now need to work overtime on planning despatches from factories to dealerships. Customers, likewise, will be keen on buying models before prices are hiked and there will be a scramble at showrooms over the next few weeks.
This back-and-forth on levies will do little in boosting confidence among manufacturers, who have been hoping for greater policy consistency in the GST era.
There is no telling what could happen next, especially if states begin independently imposing levies that are out of the GST ambit, as in the recent instance of road tax.
Automakers were on cloud nine less than six weeks ago, when GST became a reality. Large cars and SUVs became more affordable at a combined levy of 43 per cent compared to levels of 50 per cent prior to this regime.
In the case of small cars, the levy was 29 per cent for petrol (28+1) and 31 per cent for diesel (28+3), which seemed reasonable in the overall structure.
The only category that seemed short-changed was hybrids, where the levy was 43 per cent. Electric cars got the biggest tax break at just 12 per cent.