Higher GST cess on luxury cars, SUVs gets Cabinet nod: 

Higher GST cess on luxury cars, SUVs gets Cabinet nod: 

Context

• There are chances that Luxury cars and SUVs become more expensive with the Union Cabinet approving an ordinance to raise the maximum compensation cess.
• The cess can be levied over and above the 28% GST on such cars, from 15 % to 25%.

An amendment to GST

• The Cabinet has approved an amendment to the CGST (Compensation) law.
• After the implementation of GST, prices of vehicles had substantially come down, whereas smaller vehicles remained untouched.
• However, these changes will not come into effect immediately.
• The final decision of whether the cess should be raised, and by how much, will be taken by the GST Council on September 9.

Next step

• The enabling ordinance will now be sent to the President for promulgation.

What will be its effects?

• Post introduction of the new indirect tax regime, several carmakers had slashed rates to pass the benefits to the consumer.
• If the GST Council decides to increase the cess, luxury car prices may rise up by 8-10%.
• While Mercedes cars will be costlier by a minimum of Rs. 3 lakh, an Audi Q7 will see a price increase of Rs. 7 lakh, while an Audi A6 will be costlier by Rs. 5 lakh.
• This decision, contradictory to the requirement of creating a sustained demand for the luxury car in this market, would rather affect the growth momentum adversely.

Categorization of the cars remains as it is

• Revenue Secretary Hasmukh Adhia said the categorization of cars has not changed.
• Previously, the luxury cars where excise duties were levied at 27% or 30%, the same categorization is being followed.
• There is no intention of raising the tax rate on any car, other than those which were put in the luxury category and had high excise and VAT rates.

Industry consultants calls it an unfortunate decision

• Luxury cars, SUVs and ambulances will get impacted.
• This will increase the post-GST price of many vehicle categories from pre-GST levels.
• All the vehicles that were attracting 24% or 27% excise duty in the pre-GST regime may potentially attract higher tax under GST because of this decision.
• The hike in total tax could be as high as 10% in some cases.