GST cess for the luxury vehicles have increased to 25% from 15%; total tax incidence becomes 53%
If you are dreaming about buying a luxury car soon, get ready to shell out large sum of extra money. Luxury vehicles across the country will now draw 25% cess over and above 28% GST, leading the total tax incidence to whopping 53%. As the central finance ministry says, this cess hike comes to compensate the revenue loss of the states.
With the bill passed already in Lok Sabha following the GST Council’s proposal made in September, it will now officially replace the ordinance issued three months ago. In recent years, Indian auto market has experienced increased demands for the luxury cars and this led the major global luxury vehicle makers to launch more new models here. Now, with the new cess hike, sales of luxury cars are expected to see a blow again.
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As we reported earlier, India’s number one selling luxury car brand Mercedes-Benz hinted about significant sales decline due to the cess hike. It also indicated that in such case, the German luxury car brand will be forced to think twice about making fresh investment here. With the latest move by central government, it is to be seen what’s the next step from luxury car manufacturers in the country.
Interestingly, this cess hike comes right after several car brands announced price hike across their portfolio in the country from next month due to the increased production cost. Despite higher demands in recent past, Indian auto market has been experiencing trying times since November 2016. After demonetisation, implementation of GST has affected the market significantly.
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While after the roll out of GST, pricing of luxury cars were dropped significantly making them more affordable. But, later in September, GST Council revised the cess slabs and proposed higher tax rate for the luxury cars. The latest bill comes following that proposal only, making such vehicles dearer to many.
While the new bill slaps 25% cess over and above 28% GST, it is not clear if it removes the sub-bifurcation of cess depending on body style of vehicles that was announced in September by GST Council. We have to wait few days to learn more about the new bill.