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