Bend in The Road: Tax Bur­den on Big­ger Cars May Not Ex­ceed 50%

GST Coun­cil to de­cide on quan­tum of in­crease

The Economic Times - - Front Page - Deepshikha.Sikar­war @times­

New Delhi: In­dia is un­likely to al­low the to­tal tax in­ci­dence on mid­sized cars, large cars and SUVs to ex­ceed 50%, which means im­pos­ing a cess of less than 25%. That should par­tially al­le­vi­ate the fears of car mak­ers, some of which have com­plained about an in­crease in the cess forc­ing them to raise prices af­ter hav­ing just dropped them fol­low­ing the roll­out of the goods and ser­vices tax (GST) on July 1.

The fi­nance min­istry is likely to move a cab­i­net note over the next two days for amend­ing the GST com­pen­sa­tion act to raise the cess on such ve­hi­cles to 25% from 15%. The ac­tual in­crease, which has to be de­cided by the GST Coun­cil, is likely to be less to keep the over­all tax in­ci­dence be­low 50%, a top of­fi­cial said. Au­to­mo­bile com­pa­nies have protested against the pro­posed in­crease and many may roll back price cuts an­nounced af­ter GST low­ered the ef­fec­tive tax.

In the pre-GST regime, the ef­fec­tive tax on mid-sized sedans was around 47% and that for SUVs over 55%.

“The cap is be­ing raised to en­able gov­ern­ments to raise tax rate as and when needed... In­crease will also not be ef­fected at one go,” the of­fi­cial said, adding that the GST Coun­cil will take a fi­nal de­ci­sion on the quan­tum of the in­crease.

Af­ter GST was put in place, auto com­pa­nies had cut prices of most large cars and SUVs by Rs 1.1 lakh to Rs 3 lakh. GST sub­sumed 17 cen­tral and state taxes in­clud­ing ex­cise duty, ser­vice tax and value added tax and 23 cesses and pro­vides for seam­less flow of in­put tax credit. The amend­ment in the GST com­pen­sa­tion act to in­crease cess can be car­ried out by an or­di­nance if leg­is­la­tion is not passed in the cur­rent mon­soon ses­sion, which ends Au­gust 12. The GST rate on mid-sized cars, large cars and SUVs is 28% and with the cess — im­posed to col­lect rev­enues for com­pen­sat­ing states — swells to 43%. If the cess is raised to 25% from 15%, the to­tal tax in­ci­dence would go up to 53%.

As per the pro­posal, ve­hi­cles that fall un­der the tar­iff head­ings 8702 and 8703 in- clud­ing mid-seg­ment, large cars, rac­ing cars, SUVs and mo­tor ve­hi­cles that can carry more than 10 per­sons, but less than 13 such as sta­tion wag­ons, will be im­pacted by the move. Also, hy­brid ve­hi­cles with en­gine ca­pac­ity of more than 1,500 cc and mid­seg­ment hy­brid cars of less than 1,500 cc fall in the cat­e­gory fac­ing higher cess. The GST Coun­cil had on Satur­day em­pow­ered the Cen­tre to raise the cess to 25% from 15% for cer­tain types of ve­hi­cles.

The to­tal tax on mo­tor ve­hi­cles (GST plus com­pen­sa­tion cess) has dropped from what it was be­fore the levy was rolled out on July, the fi­nance min­istry had said on Mon­day in a state­ment. An in­crease in cess will help the gov­ern­ment raise rev­enue to pay com­pen­sa­tion to the states for any rev­enue loss due to GST, it had said.


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