GST Cess Hike on Mid and High Level Cars, Auto Industry Disappointed

The increased GST cess on mid-sized, luxury and SUV cars will come into effect. The GST Council on September 9 decided to hike cess on mid-sized cars by 2 per cent, taking the effective GST rate to 45 per cent.

Also, cess on large cars has been hiked by 5 per cent, taking the total GST incidence to 48 per cent while that of SUVs by 7 per cent to 50 per cent.

“Notification regarding increase in the effective rates of the Compensation Cess on specified motor vehicles will be issued on September 11, 2017, effective from 00 hours the ame day,” the Central Board of Excise and Customs (CBEC) tweeted.

After the GST council meet on Staurday, Finance Minister Arun Jaitley had said that in large vehicles where affordability of consumers is high, the cess has been increased.

“The pre-GST rate has not been restored... Even though we had a headspace of hiking cess by 10 per cent, it has been hiked by up to 7 per cent,” Jaitley had said. Cess on small petrol and diesel cars, hybrid cars and those carrying up to 13 passengers has not been hiked. Car prices had dropped by up to Rs 3 lakh as the tax rates fixed under the Goods and Services Tax (GST), which came into effect from July 1, were lower than the combined central and state taxes in pre-GST days. To fix this anomaly, the Council raised the cess.

Under the GST regime, cars attract the highest tax slab of 28 per cent and on top of that, a cess is levied. An ordinance was promulgated last week to hike the cess from 15 per cent to up to 25 per cent. The Council on Saturday decided on the quantum of hike in cess in various segments.

The highest pre-GST tax incidence on motor vehicles worked out to about 52-54.72 per cent, to which 2.5 per cent was added on account of central sales Tax, octroi and the like. Against this, post-GST, the total tax incidence came to 43 per cent. With the revision in cess quantum, now the anomalies have been removed to a greater extent.

Industry Disappointed

Automakers such as Mahindra and Mahindra, Toyota Kirloskar Motor, Audi, Mercedes-Benz and JLR India are planning to pass on the increased cess on mid-sized and large cars along with SUVs, after the GST Council's decision to raise it by up to 7 per cent. The companies said the constant changes in rates could lead to market instability and affect demand growth trends, expressing disappointment that the Council's decision ‘totally verlooked’ their contribution to the industry and the economy.

“Following the ordinance on the GST amendment, we note the increase in the cess from 2-7 per cent on mid-, large- sized cars and SUVs. We see the prices of our products going up proportionately, which may nearly reflect the pre-GST scenario... However, we are ascertaining the real price impact on our models, given the cess hike,” Toyota Kirloskar Motor Vice-Chairman and Whole-time Director Shekar Viswanathan said in a statement. “These constant changes could lead to market instability and thus dampen the spirits of the industry across the entire value chain,” Viswanathan added. Mahindra and Mahindra MD Pawan Goenka said: “We are awaiting the exact definition of the categories. Whatever is the impact of the increased cess will reflect in the revised pricing from the effective date.” He further said: “We are grateful that the Council has very thoughtfully not raised the cess to the maximum level that had been enabled by the ordinance.” The Council has basically restored pre-GST relative excise duty differentials between the various categories of vehicles.  The hybrid vehicle cess has not been increased, effectively giving these vehicles a 2-7 per cent cess relief, he added. According to BMW Group India President Vikram Pawah, while the company welcomes the implementation of the GST in India, immediate changes and increase of motor vehicles cess adversely affect stability and growth of the automotive industry in India.

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