Luxury cars and SUVs are about to be slapped with 53% tax incidence after the cess hike
Automakers present in the country are fearing a slump in demand and therefore sales decline slowing the growth due to the cess hike proposed by the GST Council and approved by cabinet. The luxury cars, midsize and large SUVs are about to be slapped with 25% cess over and above 28% GST compared to the current 15% cess over and above the highest GST slab.
Before the increased cess is applied Indian government needs to amend the law and with the cess hiked total tax incidence for the luxury cars, large and midsize SUVs will be a whopping 53% compared to current 43%. Overall, the luxury cars are about to be taxed at a rate similar as the pre-GST era. As pricing of the luxury vehicles and SUVs were slashed after the implementation of GST, demands and sales grew significantly. Now with the increased cess, sales figures are likely to slump.
Also read: Cabinet Approves GST Cess Hike On Luxury Cars And SUVs
Fueled by the GST, good monsoon and salary hike under seventh pay commission, automakers were hoping for a double digit growth for the first time in seven years. Local passenger vehicle sales were expected to increase by 7%-9% during the festive season. But, with the cess hiked, this target will be tough to achieve.
Most affected among the carmakers will be the brands like Mercedes Benz, Audi, BMW, Volvo, Honda, Toyota and Mahindra. Maruti Suzuki and Hyundai too will have to increase the price of some of their cars. Speaking about Maruti Suzuki, its cars like Ertiga, Ciaz and S-Cross that come measuring over four metres in length will see significant price hike. These models contribute around 10% to the brand’s overall sales.
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The small cars are expected to unaffected with this cess hike. In that case, we might see sales surge for the small cars. The timing of the implementation of increased cess is yet to be announced. Expect it to be announced when the GST Council meets on 9th September in Hyderabad. However, the cess hike is unlikely to be immediate.