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Car makers are unhappy with the policy flip-flop and the eagerness to hike the cess, without even observing the market situation for a few months.
Barely a month after luxury car makers reduced prices in the wake of lower overall tax rate under Goods and Service Tax, they will have to make a u-turn with the union cabinet on Wednesday giving a green signal for promulgation of an ordinance to amend the GST compensation law to hike cess on luxury cars and sports utility vehicles to 25 per cent from 15 per cent. The decision has not gone down well among auto companies, who say the move will hurt growth momentum and will adversely impact the industry, which is already heavily taxed.
"The taxes on this industry are already very high and this increase in cess rate will be detrimental to the luxury car industry as we will be forced to hike our prices to levels higher than pre-GST period," said Rahil Ansari, head of Audi India.
In May, the government had finalised tax rates under GST for more than 1,200 items. SUVs and cars with engines over 1,500cc were to be taxed at 28 per cent GST plus 15 per cent cess, effectively bringing the total tax on such vehicles to 43 per cent, which was lower than the average 55 per cent tax applicable on such vehicles in the pre-GST regime.
Rohit Suri, president of Jaguar Land Rover India said that the implementation of GST had helped remove the cascading impact of multiple taxes earlier and had enabled the industry to reduce prices, thus benefiting the consumer and expanding the market. The rise in demand would have further driven investments in local manufacturing and job creation, he added. But the government's move to hike cess now would be a dampener.
"We earnestly hope that the government and the GST council will give due consideration to this matter and desist from raising the cess and putting a dampener on the positive momentum in demand that the industry had started to witness since 1st July," said Suri.
Its a sentiment echoed by many others, who are unhappy with the policy flip-flop and the eagerness to hike the cess, without even observing the market situation for a few months.
Roland Folger, MD and CEO of Mercedes Benz India said the decision was contradictory to the requirement of creating a sustained demand for luxury cars and the move came even as the auto industry had not even settled in to see the effects of marginal relief by way of rationalisation of taxes under GST.
"With this proposed measure, the luxury car industry is going to decelerate. If at all it was required, a review could have been taken after six months when the outcome of GST regime would have been clearer," added Folger.
Folger, who has been a harsh critic of what he terms arbitrary policies of the government had said earlier that there was a need for a long-term roadmap for the luxury car industry, which has been at the receiving end of arbitrary policies, and the constant shift in policy made their long-term planning for the market highly risky.
