Sports utility vehicles (SUVs), racing cars, station wagons and 10-seater cars, including high-end cars and those on rentals, may soon become more expensive. The GST Council has asked the Centre to raise the cess cap on these vehicles to 25 per cent from the current 15 per cent, an official statement said.
After the cap on cess is raised, the total tax under the Goods and Services Tax (GST) on such motor vehicles may go up to 53 per cent from the current 43 per cent as these have been placed under the highest tax slab of 28 per cent.
Luxury car maker Mercedes-Benz India has voiced its disappointment at the government's latest decision.
The decision was taken at the Council's meeting on August 5. Though the Centre has been advised to increase the ceiling on cess, the decision on when to bring it into effect is still pending.
"The GST Council considered the issue of cess leviable on motor vehicles in its 20th meeting held on August 5 and recommended that central government may move legislative amendments required for increase in the maximum ceiling of cess leviable on motor vehicles falling under headings 8702 and 8703, including SUVs, to 25 per cent instead of present 15 per cent," said a Finance Ministry statement on Monday.
The Schedule to the GST (Compensation to State) Act, 2017, currently specifies 15 per cent as the maximum cess rate for motor vehicles.
"However, the decision on when to raise the actual cess leviable on the same would be taken by the GST Council in due course," it said.
The government said that the decision was taken because it was noticed that after the roll-out of the GST, the total tax incidence on motor vehicles had come down as compared to pre-GST regime.
"We are highly disappointed with the decision. We believe this will be a strong deterrent to the growth of luxury cars in this country," Roland Folger, MD and CEO, Mercedes-Benz India, was quoted as saying in a statement issued by the company.
"As a leading luxury car maker, this will also affect our future plans of expansion under 'Make in India' initiative, which aims at making and selling world-class products in India, with the latest technology for end-consumers," he added.
According to Folger, the government's decision will reverse the positive momentum that the industry wanted to achieve with the introduction of the GST.
"With this hike in cess, we expect the volumes of the luxury industry to decelerate, thus offsetting any growth in the potential revenue generation that could have come with the estimated volume growth," Folger said.
He also called for the need for a long-term road-map for the luxury car industry in India.
"The constant shift in policy makes our long-term planning for the market highly risky, and we think this would only have an adverse impact on the country's financial ratings," Folger said.