New Delhi: President Ram Nath Kovind has promulgated an ordinance enabling an increase in the goods and services tax (GST) cess on motor vehicles, including medium-sized cars, large cars and sports utility vehicles (SUVs), from 15% to 25%.
The GST (Compensation to States) Amendment Ordinance, 2017 has amended the law to raise the maximum cess that can be levied on cars to 25%. However, the increase in the rate from the 15% levied at present will be effective only after the federal indirect tax body, the GST Council, notifies it. Cess is levied on motor vehicles over and above a 28% GST.
The ordinance notified on Sunday in the official gazette said the change is applicable on all motor vehicles with a capacity of up to 13 persons as well as on all cars where the cess is 15% at present. That includes medium-sized to large cars, SUVs and hybrid cars. At present, cess levied on small petrol and diesel cars at the rate of 1% and 3%, respectively, remains unchanged.
The ordinance said the changes in the ceiling come into force at once.
“The Ordinance is on expected lines. Amendment to the law raising the ceiling of GST compensation cess from 15% to 25% comes into force immediately, but the actual increase may happen after a notification to that effect," said Pratik Jain, partner and leader of indirect tax practice, PwC India.
The Union cabinet chaired by Prime Minister Narendra Modi had on 30 August approved the proposal for an Ordinance. The GST Council, which is expected to meet on 9 September in Hyderabad, is likely to decide on the quantum of increase to be implemented.
The government went ahead with the decision to raise the cess despite fears of unsettling businesses during the transition to the new indirect tax system as the tax burden on large and luxury cars had come down unexpectedly after the tax reform was implemented from 1 July. The idea is to correct this unintended consequence of the GST rate fixing.
Prices of most SUVs were cut by Rs1.1 lakh to Rs3.5 lakh after the GST rollout on 1 July. As a result, car market leader Maruti Suzuki India Ltd’s domestic sales rose 22.4% in July from a year ago. Sales at Mahindra and Mahindra Ltd and Toyota Kirloskar Motor Pvt. Ltd grew 21% and 43%, respectively, in July. The expected upward revision in cess will lead to an increase in the prices of bigger vehicles.