Govt mulls increasing additional cess on luxury cars and SUVs

It seems the happiness of the luxury car makers and buyers is going to be really short lived after all. In a twist to yet another tale of GST implementation in the automobile sector, the Government is mulling over to increase the additional cess on luxury cars and SUVs from the current 15% to a substantial 25%. If this implementation happens, prices of all cars and SUVs about 4m could go back to where they were before the implementation of GST.

A Ministry of Finance notification reads that an amendment is to be made to the GST Act although “the decision on when to raise the actual cess leviable on the same will be taken by the GST Council in due course.”

Earlier a tweet from the Finance Ministry hinted at a possible cess hike. “GST Council in its 20th meeting held on August 5, 2017, considered the issue that total tax incidence on motor vehicles after GST has come down.”

Post the GST Council Meet which is scheduled to happen next month, an official announcement on the hike in the additional cess is likely to be announced. While GST rates of luxury SUVs and sedans might face an impending hike, the prices of cars in the other segments are most likely to be unaffected.

Many of the carmakers are completely shocked at the latest developments around GST. “We are highly disappointed with the decision. We believe this will be a strong deterrent to the growth of luxury cars in this country. This decision will also reverse the positive momentum that the industry wanted to achieve with the introduction of GST. With this hike in cess, we expect the volumes of the luxury industry to decelerate,” said Roland Folger, MD and CEO, Mercedes-Benz India.

With a volatile policy around automobiles, manufacturers are finding it extremely difficult to plan for the long term and manufacturers have started getting more vocal about it. Also, with better and more efficient technologies like ‘Hybrid’ taxed higher, the Government might cause more damage to the environment than preserving it.

Vikram Pawah, President of BMW Group India said, “While we welcome the implementation of GST in India, immediate changes and fluctuations on motor vehicles cess will adversely affect the stability and growth of the automotive industry in India. We strongly believe that long term stability in tax reforms and regulations are of paramount importance to foster growth of any industry in the country.”

“The taxes on this industry were already very high and we expected the unfulfilled potential of this segment to increase after the implementation of GST and rationalisation of taxes. However, the proposal of further increasing the cess on the luxury car industry will dampen the spirits of not only the companies, dealers and customers but also industry workers,” Rahul Ansari, Head, Audi India said.

In fact, Audi India will be forced to re-evaluate its business plans in India as this move will have an adverse impact on sales, he further added.

With the implementation of GST, while most of the manufacturers had happily passed on the benefits to their consumers, post the additional cess hike, the burden is most likely to be passed on back to ther end consumers. This would result in a significant price hike for many models across multiple segments. The automobile industry is definitely not happy.