CESS ON SUVs, LUXURY CARS TO BE HIKED
Companies say move will affect expansion plans, job creation
NEWDELHI: Makers of sports utility vehicles (SUVs) and high-end cars are protesting against the GST Council’s plan to raise the cess on such products from 15% to as much as 25%, warning that the move will lead to production cuts and job losses and dent the Make in India initiative.
If the cess indeed is increased, prices of top SUVs may go up by between ₹72,000 and ₹2.58 lakh.
“This move will impact production and jobs. I am surprised. I have no face to show to our principals in Japan,” Shekar Viswanathan, vice-chairman, Toyota Kirloskar Motor Pvt. Ltd, said in a phone interview. “This move will end up favouring one set of players vs another set of players,” Viswanathan added.
A finance ministry statement said that after GST was introduced, the total tax incidence on motor vehicles, comprising the tax rate and cess, came down compared with the total tax incidence under the pre-GST regime. Accordingly, prices of most SUVs were cut between ₹1.1 lakh and ₹3.5 lakh. As a result, market leader Maruti Suzuki India Ltd’s domestic sales rose 22.4% in July from a year ago. Sales at Mahindra & Mahindra Ltd and Toyota Kirloskar Motor grew 21% and 43%, respectively.
Considering that a sharp cut in prices of SUVs might send the signal that the tax reform is making luxury items cheaper, eroding the government’s revenue, the council wants to readjust the cess on cars.
The finance ministry statement said the GST Council considered this issue at its 5 August meeting and recommended to the centre to move legislative amendments required for increasing the “maximum ceiling of cess leviable on motor vehicles to 25% instead of present 15%”.
“The government has not been consulting industry at all on this issue. They just need to understand that this not how businesses are done,” Toyota’s Viswanathan said.
Toyota will look to deploy its “engineering resources” in other countries, he added. “Not that their (Toyota Japan) interest in India will go away permanently. But the fact remains that there are so many other opportunities where limited engineering resources will be accepted,” he added.
Mercedes-Benz India Pvt. Ltd said the move will affect its plans for expansion under the Make in India programme.
“We feel deprived as the leading manufacturer of luxury cars in India,” said Roland Folger, managing director and CEO, Mercedes-Benz India. He expects sales of luxury cars to decelerate and emphasized the need for a long-term road map for the luxury car industry, which has been “at the receiving end of arbitrary policies”.
“The constant shift in policy makes our long-term planning for the market highly risky, and we think this would only have an adverse impact on the country’s financial ratings,” Folger added.