Amid a cheering market response to the reduction in ex-showroom prices of up to Rs 11 lakh, following lower taxation post - GST, the luxury carmakers are crying hollow over hiked cess to 25 per cent from the earlier 15 per cent.
Mercedes-Benz the leader of the luxury pack said that the new decision will affect their 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.
"We are highly disappointed with the decision. We believe this will be a strong deterrent to the growth of luxury cars in this country. We feel deprived as the leading manufacturer of luxury cars in India, who has been championing 'Make in India'. This decision will also reverse the positive momentum that the industry wanted to achieve with the introduction of 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."
The luxury segment had been facing reverses in the Indian market over spate of issues, right from the diesel ban in Delhi NCR last year that negatively impacted the sales for luxury brands. While an overall negative sentiment around demonetization led to insecurity in the market. Now these players allege that they have always been suffering due to the unfavorable taxation which kept out people who wanted to upgrade to luxury cars.
"Luxury car industry in India, while small in volumes, still contributes over 10 percent in value. The taxes on this industry were already very high and we expected the unfulfilled potential of this segment to increase after the implementation of GST and rationalization of taxes. However, increasing the cess on the luxury car industry will dampen the spirits of not only the companies, dealers and customers but also workers and employees working in this industry. We will be forced to re-evaluate our business plans in light of this development," said Rahil Ansari, Head Audi India.
Luxury carmaker had reduced prices by up to RS 11 lakh on their expensive brands following tax rationalization under the new GST regime. Some companies, keeping in mind the proposed increase in cess have introduced new offers on their best-selling cars. Likewise Audi for its A4 & A3 sedan along with Audi Q3 SUV is offering higher discounts and offers.
Company executives say that one of the original benefits expected out of GST was rationalization of tax rates. Luxury cars and SUVs are one of the segments that long required tax rationalization, as this segment remains highly taxed. "One month is too short a period to consider an upward revision in rates. The market performance should have been watched for at least 6 months, before it was relooked. The current proposal of increase in cess clubbed with the increased road tax rates, will take the effective consumer price much above the pre GST scenario level," Mr Folger added.
The automotive industry which has been at the receiving end of arbitrary policies has been demanding a long-term roadmap. Alleging that the constant shift in policy makes impact their long-term planning making the market highly risky, where the government is causing more damage to the environment by increasing tax on modern technology and slowing down the overall growth pace.