Mid-size Dreams Hit a Tax Bump Hike in cess to make many pop­u­lar cars costlier, may force com­pa­nies to re­work plans

The Economic Times - - Front Page -

Sharmistha Mukher­jee & Ke­tan Thakkar

The GST Coun­cil, the body that sets the rates, on Sat­ur­day de­cided to in­crease the cess to 25% from the ear­lier 15%. The rate change will ap­ply to pas­sen­ger ve­hi­cles that are longer than 4 me­ters, for which the tax in­ci­dence will now be 53%, in­clud­ing GST at 28%, in­dus­try ex­ec­u­tives and ex­perts said. While the pre-GST taxes were around 53% on the lux­ury seg­ment, mid-size cars faced lower rates.

For in­creas­ing the cess, a gov­ern­ment no­ti­fi­ca­tion cited a drop in tax in­ci­dence on the au­to­mo­bile in­dus­try af­ter the im­ple­men­ta­tion of GST. An amend­ment to the law is re­quired to ef­fect the change. Small cars, which ac­count for most of the vol­ume in In­dia’s 3 mil­lion-plus vol­ume mar­ket, are un­likely to see any change in prices as the cess on those re­main at 1-3%.

Pas­sen­ger ve­hi­cles that are larger than 4 me­tres ac­count for 28-30% of to­tal sales, but con­trib­ute 50-60% of the in­dus­try turnover and, there­fore, make a big­ger con­tri­bu­tion to the ex­che­quer. While Maruti Suzuki chair­man RC Bhar­gava said the com­pany would have to work out the im­pact of re­vised rates to de­ter­mine ve­hi­cle prices, Roland Fol­ger, the manag­ing direc­tor of Mercedes-Benz In­dia, said the in­crease in cess clubbed with higher road tax in some states would take the ef­fec­tive con­sumer price much above the pre-GST level. The move will also act as a strong de­ter­rent to the growth of lux­ury cars in this coun­try and this could po­ten­tially im­pact the fu­ture plans of ex­pan­sion un­der ‘Make in In­dia’, Fol­ger said.

A se­nior ex­ec­u­tive said the au­thor­i­ties had not taken the in­dus­try’s plight into ac­count while de­cid­ing on the cess. “There is a se­ri­ous mis­cal­cu­la­tion. The in­dus­try is be­ing treated like a foot­ball de­spite its se­ri­ous con­tri­bu­tion to GDP,” he added.

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