Cab­i­net nod for GST cess hike on lux­ury cars, SUVS

Mint ST - - CORPORATE - BY GIREESH CHAN­DRA PRASAD & AM­RIT RAJ NEW DELHI

Govt to raise cess limit to 25%; GST Coun­cil likely to set rate at 9 Sep meet

The cab­i­net on Wed­nes­day ap­proved an or­di­nance en­abling the gov­ern­ment to raise the goods and ser­vices tax (GST) cess on medium-to-large cars and sport util­ity ve­hi­cles (SUVS) to 25% from 15%. The or­di­nance is ex­pected to pre­cede a 9 Septem­ber meet­ing in Hy­der­abad of the GST Coun­cil, the fed­eral body that de­cides on all in­di­rect tax matters. At the meet­ing, the coun­cil may de­cide where to fi­nally fix the cess, which is now at 15%.

Prices of most SUVS were cut by be­tween Rs1.1 lakh and Rs3.5 lakh after the GST roll­out on 1 July. As a re­sult, car mar­ket leader Maruti Suzuki In­dia Ltd’s do­mes­tic sales rose 22.4% in July from a year ago. Sales at Mahin­dra and Mahin­dra Ltd and Toy­ota Kir­loskar Mo­tor Pvt. Ltd grew 21% and 43%, re­spec­tively in July. Any up­ward re­vi­sion in cess will lead to an in­crease in prices of big­ger ve­hi­cles.

Fi­nance min­is­ter Arun Jait­ley, who briefed re­porters about the cab­i­net de­ci­sion, said the ap­proval was for an or­di­nance to amend the GST (Com­pen­sa­tion to States) Act, 2017, to in­crease the statu­tory limit on the cess on some mo­tor ve­hi­cles. The cess will help the Cen­tre com­pen­sate states for any rev­enue loss dur­ing the first five years after the im­ple­men­ta­tion of GST.

Ac­cord­ingly, the up­per limit of cess that can be im­posed by the gov­ern­ment on mo­tor ve­hi­cles with a ca­pac­ity to carry 13 peo­ple, ve­hi­cles with 10-13 peo­ple ca­pac­ity, mid-seg­ment cars with en­gine ca­pac­ity less than 1500cc and large seg­ment cars with higher en­gine ca­pac­ity, SUVS and hy­brid ve­hi­cles, will go up to 25% once the or­di­nance is pro­mul­gated. The up­per ceil­ing on small petrol and diesel cars less than 4 me­tres long, which cur­rently at­tract cess of 1% and 3% re­spec­tively, re­main un­changed. Mo­tor ve­hi­cles at­tract a GST of 28% be­sides the ap­pli­ca­ble cess. “It does not mean that the cess will au­to­mat­i­cally go up from 15% to 25%. It (the Or­di­nance) only is an en­abling mea­sure. The GST Coun­cil, is en­ti­tled to take a de­ci­sion on whether it needs to in­crease the cess within the cap,” said Jait­ley, who also chairs the coun­cil which has state min­is­ters as mem­bers.

The move is aimed at restor­ing tax rev­enue from the au­to­mo­bile in­dus­try that got af­fected when the fed­eral in­di­rect tax body fixed the cess at the cur­rent level, lead­ing to price cuts across var­i­ous mod­els in the ini­tial days of GST’S roll­out.

Roland Fol­ger, man­ag­ing di­rec­tor, Mercedes-benz In­dia Pvt. Ltd, said that if at all such a move was re­quired, a re­view could have been taken after six months when the out­come of GST regime would be clearer.

“In any case, the hurry to im­ple­ment the hike in cess is frankly quite sur­pris­ing to us. What we un­der­stand from the press re­ports is the fact that the col­lec­tion of tax has been above ex­pected and it would have been ideal to give the in­dus­try more time to an­a­lyse the out­come of GST on our busi­ness,” Fol­ger said.

Pawan Goenka, man­ag­ing di­rec­tor of Mahin­dra & Mahin­dra Ltd, said the move is on 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,” he added. The hike in cess is just one among a slew of other sur­prises that have up­set auto firms.

There have been sev­eral—in­clud­ing a higher rate on en­vi­ron­men­tally friendly hy­brid cars, an eight-month ban on large diesel ve­hi­cles by the Supreme Court in 2015 and the ad­vance­ment of the dead­line for Bharat Stage VI emis­sion norms to 2020 from 2022.

Mak­ers of SUVS and lux­ury cars have crit­i­cized the GST Coun­cil’s plan to raise cess, warn­ing the move will lead to pro­duc­tion cuts and job losses and dent the ‘Make in In­dia’ ini­tia­tive. The gov­ern­ment says the in­ten­tion of im­ple­ment­ing the tax re­form was not to re­duce the tax bur­den on items like lux­ury cars and to­bacco.

“If at all a re­lief (in tax bur­den) is to be given, it should be given to prod­ucts con­sumed by the com­mon man,” said the fi­nance min­is­ter, adding that a per­son who can af­ford a car priced at Rs1 crore would not mind buy­ing it for Rs1.02 crore.

gireesh.p@livemint.com

BLOOMBERG

Prices of most SUVS were slashed by be­tween Rs1.1 lakh and Rs3.5 lakh after the im­ple­men­ta­tion of GST on 1 July.

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