Cabinet Approves GST Cess Hike On Luxury Cars And SUVs

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Pricing of luxury cars and large SUVs to be increased significantly; total tax incidence go up to 53%

The union cabinet has approved the proposal of GST Council of hiking the GST cess on luxury cars, mid-size, large SUVs from current 15% to 25%. The government is ready to push for a presidential nod to increase the maximum cap of cess that will lead the total tax incidence for the luxury cars to 53% from current 43%.

No wonder, with this cess hike, luxury cars and large SUVs will become significantly pricier and it will surely affect the business of several luxury car brands as well as automakers like Mahindra, Toyota. Under the new tax structure, luxury cars and SUVs will be slapped with 25% cess over and above the 28% GST compared to the current 15% cess over and above 28% GST.

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With the GST implemented across the country on 1st July 2017, price of a large number of SUVs were slashed by up to Rs. 3 lakh improving the sales figure for the brands across the country. The luxury automakers too reduced pricing of their products significantly, making the premium cars bit affordable. However, it seems the good time is over now with the cess hiked.

After the presidential nod, the law needs to be amended and GST Council will decide from when the increased cess will be applicable on the cars. Expect the announcement to be made on 9th September, when the council meets again in Hyderabad. But, the hike is not going to be immediate. Just a few days ago, Mercedes-Benz India’s managing director Roland Folger said that with the cess hiked situation is likely to go back to square one. He also said that it would impact the job creation as well. Now, it is to be seen how the carmakers deal with the new tax structure.

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However, with the cess hiked for luxury cars and large SUVs, tax rate for the hybrid vehicles remains same at 43% that includes 15% cess over and above 28% GST. Due to the increased tax rate for hybrid vehicles, Mahindra has announced it won’t launch new hybrid models in the country until the tax rate is lowered.