GST cess hike on cars may be passed on to buyers
New Delhi: Automakers such as Mahindra and Mahindra, Toyota Kirloskar Motor India Ltd, Audi India, Mercedes-Benz India and Jaguar Land Rover are planning to pass on the increased cess on mid-sized and large cars along with SUVs, after the GST Council’s decision to raise it by up to 7%.
The companies said the constant changes in rates could lead to market instability and affect demand growth trends, expressing disappointment that the GST Council’s decision “totally overlooked” their contribution to the industry and the economy.
“Following the ordinance on the GST amendment, we note the increase in the cess from 2-7% on mid-, large-sized cars and SUVs. We see the prices of our products going up proportionately, which may nearly reflect the pre-GST scenario... However, we are ascertaining the real price impact on our models, given the GST cess hike,” said Shekar Viswanathan, vice-chairman and whole-time director, Toyota Kirloskar Motor. “These constant changes could lead to market instability and thus dampen the spirits of the industry across the entire value chain,” Viswanathan added.
Mahindra and Mahindra MD Pawan Goenka said, “We are awaiting the exact definition of the categories. Whatever is the impact of the increased cess will reflect in the revised pricing from the effective date.” “We are grateful that the GST Council has very thoughtfully not raised the cess to the maximum level that had been enabled by the ordinance.”
The GST cess hike has effectively brought car prices to levels before the implementation goods and services tax. While GST cess on hybrid cars has not been increased, the cess on mid-segment cars will go up by 2 percentage points, large cars by 5 percentage points and SUVs by 7 percentage points. The GST Council, however, kept GST rate on small cars unchanged.
According to BMW Group India President Vikram Pawah, while the company welcomes GST in India, immediate changes and increase of car cess adversely affect stability and growth of the automotive industry in India. Others like Audi, Mercedes-Benz and JLR India also expressed disappointment over the GST Council’s decision to hike cess on mid-sized and large cars and SUVs by up to 7 percentage points.
Reacting to the hike in cess, Audi India Head Rahil Ansari said: “Even if the rumoured cess hike of 10% was not concluded, the prices will go up again, which is disappointing. We will need to study the impact of this hike on the buyer sentiment.” He further said the taxes on the auto industry are already very high and “we expected the unfulfilled potential of this segment to increase after the implementation of GST and rationalisation of taxes”.
Expressing similar views, Mercedes-Benz India MD and CEO, Roland Folger said: “The decision to increase the cess yet again is very unfortunate and totally overlooks the contribution we make to the industry and the economy.” Though the luxury car industry’s volume contribution is very low, the value-wise share is much higher and that has immense potential to grow even more in future if there is “fair taxation”, he said. On the impact on prices of vehicles, he said: “With this increase in cess now, the prices are bound to leap back to the pre-GST regime, in some cases higher than the pre-GST regime, thus negating altogether the benefits of GST regime.”
Jaguar Land Rover India President and MD Rohit Suri said, “While the increase in cess will impact consumer demand, investment and job creation, we are glad that the government and the GST Council took note of our concerns and somewhat moderated the increase in cess.”
Under the new GST rates, popular mid-sized cars like Honda City, Maruti Suzuki Ciaz petrol and the newly launched Hyundai Verna will see price increase by 2 percentage points. Similarly, luxury cars such as BMW 3, 5 and 7 series, Audi A3, A4, A6 and A8 along with Mercedes C Class, E Class and S Class will now get more expensive by 5 percentage points. SUVs, starting from Scorpio and XUV500 from the stable of Mahindra and Mahindra, Renault Duster, Toyota Fortuner to luxury ones like Land Rover Discovery, Audi Q3, Q5 and Q7, BMW X3 and X5, along with Mercedes GLA, GLC and GLS will all see prices going up by 7 percentage points.
In the earlier approved rates, large cars with engine greater than 1,500 cc and SUVs with length more than 4 metres and engine greater than 1,500 cc attracted cess of 15 %.
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