Maximum Cess On Cars To Be Hiked To 25%

The government will increase the maximum cess that can be levied on cars to 25 percent from 15 percent as their tax burden has fallen under the Goods and Services Tax regime.

The GST Council considered the issue in its 20th meeting held on Saturday and recommended that the central government may move legislative amendments required for increasing the cap on cess charged on such vehicles, an official release said on Monday.

It will be discussed at the GST Council's next meeting on September 9, three officials aware of the development told BloombergQuint.

The total levy, including the compensation cess, on motor vehicles has come down compared to the pre-GST tax structure. Automakers such as Maruti Suzuki Ltd., Toyota Toyota Kirloskar Motor Pvt. Ltd., Ford India Pvt. Ltd, Jaguar Land Rover, BMW, Mercedes-Benz and Audi cut prices after the GST implementation.

For example, tax on a Mercedes-Benz vehicle fell from around 48 percent to 43 percent (28 percent GST +15 percent cess), and the government will amend the law to correct it, one of the officials quoted above said.

“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 & CEO, Mercedes-Benz India, said in a statement.

The decision will reverse the positive momentum that the industry wanted to achieve with the introduction of GST, Folger said.

The proposed amendment to increase the cess to 25 percent will be moved in Parliament in the ongoing monsoon session. Once approved, a rate of cess to be levied, whether at 25 percent or lower, will be discussed in the next meeting of the council, the officials said.

Cess on cars stands at 1, 3 and 15 percent depending on the engine capacity and length. Small cars and compact SUVs fall in either the 1 percent or the 3 percent cess bracket.

Cars with a length of over four metres and an engine capacity of over 1200cc but below 1500 cc attract a cess of 15 percent. The same quantum of cess is levied on cars with an engine capacity of more than 1500cc.

A compensation cess of 15 percent is charged on hybrid vehicles over and above the GST rate of 28 percent. The auto industry has demanded a lower GST rate on hybrids as such vehicles are being taxed on a par with luxury vehicles. If the tax on luxury vehicles and SUVs is increased, that situation will not arise, said the second official quoted above.