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25% Cess Increased On Cars Above Four Meters and SUV’s – Industry Threatens With Job Cuts And Negative Growth

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25% Cess Increased On Cars Above Four Meters and SUV’s will dramatically affect the car market as every important car launch in the country right now is in the same segment

The Union cabinet on Wednesday approved an enactment for raising the goods and service (GST) cess on luxury cars and sports utility vehicles (SUV’s) up to 25% from 15% under the new GST regime. According to the proposed ordinance that seeks to amend the Goods and Service Tax (Compensation to States) Act, 2017, the maximum compensation cess can be raised to 25%, from 15%.

The decision to increase the cess on mid and large-sized vehicles will be taken by the GST council. 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. With the increase in cess, the cuts will be reversed.

Cars attract the top tax rate of 28%. On top of this, a cess pf 1-15% is levied for the creation of the state compensation corpus. After the introduction of GST, the total tax incidence on motor vehicles has come down when compared with the total tax incidence in the pre-GST regime.

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Once the law is amended, the GST council will decide on the date when the increased cess will be applicable, the next meeting regarding this is scheduled to be held in Hyderabad on September 9 by the panel. The hike in the GST cess cap is not across all category of cars, stated revenue secretary Hasmukh Adhia.

Cess on cars earlier stood at 1%, 3% and 15% depending on the engine capacity and length, cars with a length of over four meters and an engine capacity of over 1200 cc but below 1500 cc attract a cess of 15%. The same quantum of cess is levied on cars with engine capacity above 1500 cc. The compensation cess is levied over and above the GST rate of 28%.

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The GST council had considered the issue in its 20th meeting held on August 5 and recommended that the central government move legislative amendments required for increasing the cap on cess charged on such vehicles under the label 8702 and 8703 to 25% instead of the present 15%, an official release from the finance ministry had said earlier.

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