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GST Cess Hike To Drive Up Prices Of Premium Cars And SUVs

The removal of the cascading impact enabled the Industry to reduce prices and benefit the consumer as well as expand the market, which had been declining because of high taxation.

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Around mid September or early October the prices of premium models such as the Honda Accord, Toyota Innova, Hyundai Elantra, Mahindra XUV 500, Renault Duster, Mercedes E-Class, BMW 5- Series, Audi A4, etc, could go for an upward revision by  up to Rs. 5 lakh. The move will be necessitated because the Union Cabinet has cleared an Ordinance (executive order) to raise the Goods and Services Tax (GST) cess on premium cars and SUVs to a maximum of 25 per cent, from 15 per cent at present.

Dr. Pawan Goenka, Managing Director, Mahindra & Mahindra (M&M), “Passing of ordinance to increase the limit of cess to 25%, on certain class of vehicles, is along the expected lines. What is critical to the industry is when, how much and on what criteria will the cess be increased. Industry has made a representation to the government and we await the final decision.”

It may be recalled that after the GST implementation on July 1, most of the carmakers operating in the premium and SUV segments went for a major price cut. However, the situation will reverse as the ordinance is seen as an attempt to rectify the anomaly where rates of certain common use items had gone up but luxury cars were costing less under the new regime.

Finance Minister Arun Jaitley said the ordinance will amend the GST (Compensation to States) Act, 2017 to raise the maximum rate of cess. However, he maintained the actual cess on different classes of vehicles and as to when it will be implemented is to be decided by the GST Council on September 9 in Hyderabad. Once that is finalized and later sent to the President for promulgation

The taxes on this industry are already very high and this increase in cess rate will be detrimental to the luxury car industry as we will be forced to hike our prices to levels higher than pre-GST period. This is bound to adversely impact sales by possibly a double-digit reduction and will consequently reduce revenues for the company, dealers and perhaps also tax revenues for the Government. While the overall impact will still have to be evaluated in some time, we will be forced to redraw our plans for the Indian market based on future projections in this scenario, said Rahil Ansari, Head Audi India. He added, “We request the GST Council to carefully evaluate the negative impact on this and, if a decision is taken on a 10% cess increase, postpone the implementation for another 6-12 months to evaluate the real impact of the GST on the automobile sector, in particular the luxury segment. This will surely prove that the overall effect with a lower cess percentage of 15% is generating higher tax revenues than expected.”

Roland Folger, Managing Director & CEO, Mercedes-Benz India maintained, “The automotive segment has not even settled in, to see the effect of the marginal relief in terms of rationalization of taxes in the GST regime. Prior to this, the proposed increase in Cess has surprised the entire luxury car industry. Attracting one of the highest rates under GST, even without this proposed increase, the luxury industry is already highly taxed, which constrains its growth. Now, with this proposed measure, the luxury car industry is going to decelerate. If at all it was required, a review could have been taken after six months when the outcome of GST regime would have been clearer.”

Rohit Suri, President and Managing Director, Jaguar Land Rover India Ltd. stated, “The GST implementation on 1st July removed the cascading impact of multiple taxes applicable in the pre-GST regime, which we understand was one of the primary objectives of the Government. The removal of the cascading impact enabled the Industry to reduce prices and benefit the consumer as well as expand the market, which had been declining because of high taxation. The expansion in demand would have enabled further investments in local manufacturing and job creation across the supply chain including more people in factories, showrooms, workshops and logistics service providers. We earnestly hope that 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 that the industry had started to witness since 1st July.”

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