The Union Cabinet today gave its go-ahead for hike in Goods and Service Tax (GST) cess on mid-size, luxury cars and SUVs to 25 per cent from 15 per cent under the new GST regime.
Even cars like Hyundai Verna, Honda City, Mahindra Scorpio are likely to be affected by the cabinet decision hiking GST cess from 15 per cent to 25 per cent.
Under the GST regime, large cars with engine capacity of greater than 1,500 cc and SUVs with length of more than four metres and engine greater than 1,500 cc attracted a cess of 15 per cent.
German luxury car maker Mercedes Benz had earlier warned that that levy of cess might see prices of its vehicles go back to what was prevalent before implementation of Goods and Services Tax.
Mercedes Benz India, Managing Director, Roland Folger, said that the situation may go back to "square one" due to levy of cess for large cars and Sports Utility vehicles (SUVs) if government does not intervene.
The GST Council had on August 5 approved raising cess on SUVs, mid-size, large and luxury cars that had become cheaper post GST rollout on July 1.
But raising the cess requires an amendment to the Schedule of section 8 of the GST (Compensation to a State) Act, 2017.
The highest pre-GST tax incidence on motor vehicles worked out to about 52-54.72 per cent, to which 2.5 per cent was added on account of Central Sales Tax, octroi etc. Against this, post-GST the total tax incidence came to 43 per cent.
So, to take the tax incidence to pre-GST level, the highest compensation cess rate required is 25 per cent.
Prices of most SUVs were cut between Rs 1.1 -3 lakh following the implementation of GST, which subsumed over a dozen central and state levies like excise duty, service tax, and VAT from July 1.
Cars attract the top tax rate of 28 per cent. On top of this, a cess of 1 to 15 per cent is levied for the creation of the state compensation corpus.
The GST Council, the apex tax rate setting body under the Goods and Services Tax (GST) regime, may in its next meeting on September 9 decide on the date when the increased cess will be applicable.
Prices of most SUVs were cut between Rs 1.1 lakh and Rs 3 lakh following the implementation of GST, which subsumed over a dozen central and state levies like excise duty, service tax, and VAT from July 1.Small petrol cars of less than 4 meters and 1,200 cc attract a cess of 1 per cent, while small diesel cars of less than 4 meters and 1,500 cc engine attract a cess of 3 per cent.
Last month, Folger had sought lower taxes on luxury cars in India, saying the move would help in job creation as well as increase tax collection from the segment.
"We have seen in India that if on the one hand something is given, then on the other hand something is taken back", Folger had said.
(with PTI inputs)