Luxury cars, SUVs to cost more as GST council approves cess hike
New Delhi: Sports utility vehicles (SUVs) and luxury cars, which became cheaper after the 1 July rollout of the goods and services tax (GST), may cost more with the GST Council, federal indirect tax body, planning to raise cess on them from 15% now to up to 25%.
An official statement from the finance ministry said that after GST was introduced, the total tax incidence on motor vehicles comprising the GST rate and the cess came down compared to the total tax incidence in pre-GST regime. The statement said that the Council considered this issue at its 20th meeting on 5 August and recommended to the Central Government to move legislative amendments required for increasing the “maximum ceiling of cess leviable on motor vehicles to 25% instead of present 15%.”
“However, the decision on when to raise the actual cess leviable on the same will be taken by the GST Council in due course,” said the statement.
The proposal to raise the ceiling of cess covers large motor vehicles with capacity for 10-13 persons, mid segment and large cars, sports utility vehicles, mid segment hybrid cars and other hybrid vehicles, all of which at present attract 15% cess. However, it is not clear if cess will be raised on small petrol cars which at present attract 1% cess and and diesel cars bearing 3% cess, although they fall under the same heading in the tax manual as the other cars.
“I would want to believe that small cars and SUVs will continue to be taxed differentially as is the case today and was the case in the earlier indirect tax regime,” said Bipin Sapra, tax partner at the consulting firm EY.
The GST Council, at its 20th meeting in the capital on Saturday, made some adjustments in tax rates and resolved to put in place screening panels at central and state levels to check any profiteering tendency in the industry during the transition to the new indirect tax regime.
The council had attempted to fix GST rates on goods and services in such a way that the tax burden on most items remains at previous levels, while in some cases, it was lowered in view of the changing consumption pattern. Besides, the efficiency in the new tax regime also contributed to lowering the tax burden on many items.
Accordingly, prices of most SUVs were cut between Rs1.1 lakh and Rs3.5 lakh. PTI reported on 19 July that Fiat Chrysler Automobile (FCA) India Pvt. Ltd. reduced prices of its Jeep model range by up to Rs18.49 lakh in order to pass on the benefit of GST to the customers.
Considering a sharp cut in prices of SUVs might send the signal that the tax reform is making luxury items cheaper, eroding the government’s revenue, the council wants to readjust the cess on cars.
The cess collected on cars, tobacco and coal will be used to compensate the revenue loss of states from implementing GST.
States are pitching for changes in tax rates on a few other items. Phosphoric acid, used in making fertilizer, attracts 18% GST, although fertilizers are taxed only at 5%, causing an inverted duty structure, some of the sates argued before the Council. They wanted the raw material also to be taxed at 5%.
However, the council is keen to keep rate revisions to the minimum in order to allow the new indirect tax system to settle down, while quickly responding to calls for correcting anomalies.
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