With the Cabinet giving its nod for a hike in cess on large cars and SUVs manufacturers are watching with bated breath the quantum of the hike which is expected to be announced soon.
The Finance Ministry now has the option of hiking cess to a maximum of 25 percent from the current 15 percent. Such a 10 percent increase will result in prices jumping by a minimum of Rs 1 lakh going up to Rs 10 lakh.
All passenger vehicles (cars and SUVs) which are more than four meters in length are classified as large cars as per government’s definition under the Goods and Services Tax (GST) regime. Prices of all such vehicles, which generate 20 percent of industry volumes, will get dearer when the cess is hiked.
Manufacturers will now have to retune their production for an expected demand anomaly (at wholesale and retail level) which would last for up to six weeks. Many buyers will likely prepone their purchase to escape the price hike. Incidentally, the hike will coincide with the onset of Shradh period which is when auto demand hits a low gear.
Pawan Goenka, Managing Director, Mahindra & Mahindra said, “Passing of ordinance to increase the limit of cess to 25 percent, on certain class of vehicles, is along expected lines. What is critical to the industry is when, how much and on what criteria will the cess be increased. Industry has made a representation to the Government and we await the final decision”.
With the exception of the TUV300, KUV100 and Verito Vibe all passenger vehicles made by M&M such as Scorpio, XUV500, Bolero, Xylo and Verito will be hit by the cess hike.
The government’s definition of large cars puts all such cars in the same category as luxury cars. Hyundai Motor India and Maruti Suzuki, who together hold nearly 65 percent share of the domestic market, have objected to being labeled as manufacturers of ‘luxury cars’.
While in some cases the revised prices will be back to the same level as pre-GST in other cases it will be even more. For instance, luxury car market leader Mercedes-Benz has raised a strong objection to the hiking of cess stating that the hike will push its car prices higher than levels before the onset of GST.
Rohit Suri, President and Managing Director, Jaguar Land Rover India said, “The GST implementation on July 1 removed the cascading impact of multiple taxes applicable in the pre-GST regime, which we understand was one of the primary objectives of the government. The removal of the cascading impact enabled the industry to reduce prices and benefit the consumer as well as expand the market, which had been declining because of high taxation".
"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,” he added.
Under the GST regime small cars attract a cess of 1 percent while large cars attract 15 percent cess which is slapped over and above the 28 percent GST. The government today got the approval to hike the cess on large cars to 25 percent thus taking the total cess on such cars to 53 percent.
As a result of the cess the industry is staring at a growth loss this year with some manufacturers even threatening pull-back of planned investments. All luxury car makers, Mercedes-Benz, BMW, JLR, Audi and Volvo as well as companies like M&M have lined up investments in new products and capacity enhancements in India.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
