The cabinet has passed the ordinance to hike cess ceiling on SUVs and luxury cars from the earlier 15% to 25% over and above the 28% GST that applies on luxury car segment. The step would up the price of cars in the category and industry foresees the move as a deterrent in its growth plans.
The cess is used as a compensatory amount to offset any losses that a state may incur due to the implementation of the new GST regime as they may earn less revenue now in comparison to the previous taxation regime.
The clearing of the ordinance for increasing the cess will amend the Schedule to Section 8 of the GST (Compensation to States) Act, 2017. The decision to increase the cess is on the back of the fact that under GST lesser tax rate applies on these cars than under the indirect taxation regime.
Nonetheless, even after the ordinance has been cleared by the cabinet, final decision shall be taken by the GST Council and total GST and cess shall not be over 50%.
The decision shall hurt the already struggling luxury car industry which saw flat performance last year due to the demonetisation move as well as ban of 2000cc diesel cars in the first eight months of the year in the NCR region.
So, players in the segment including Toyota, Mahindra and Mahindra, Audi, Mercedes, JLR and Audi will be adversely impacted.