Luxury cars, SUVs to become expensive in India as GST Council mulls date to raise levy

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One of the most promising markets for the automobile sector – India – is all set to put some serious brakes on the luxury cars and SUVs with the GST Council mulling to finalize a date to raise levy on such cars.

Reports in the local media in India cite the country’s Finance Minister Arun Jaitley and state that the panel of India’s federal and state finance chiefs will decide whether to raise an additional levy on luxury and large vehicles to up to 25 percent from 15 percent.

Under the new tax regime, most vehicles are currently taxed at 18 per cent with an additional levy of 15 percent on some types of cars. Once the law is amended, the GST Council will decide on the date when the increased cess will be applicable, the official said, adding the next meeting of the panel is scheduled to be held in Hyderabad on September 9.

The highest pre-GST tax incidence on motor vehicles worked out to about 52-54.72 per cent, to which 2.5 per cent was added on account of Central Sales Tax, octroi etc. Against this, post-GST the total tax incidence came to 43 per cent.

Prices of most SUVs were cut between Rs 1.1 lakh and Rs 3 lakh following the implementation of GST, which subsumed over a dozen central and state levies like excise duty, service tax, and VAT from July 1. Cars attract the top tax rate of 28 per cent. On top of this, a cess of 1 to 15 per cent is levied for the creation of the state compensation corpus.

So, to take the tax incidence to pre-GST level, the highest compensation cess rate required is 25 per cent. Presently, large motor vehicles, SUVs, mid-segment cars, large cars, hybrid cars and hybrid motor vehicles attract a cess of 15 per cent on top of 28 per cent GST. Small petrol cars of less than 4 meters and 1,200 cc attract a cess of 1 per cent, while small diesel cars of less than 4 meters and 1,500 cc engine attract a cess of 3 per cent.

To rectify the anomaly, the GST Council, headed by Union Finance Minister Arun Jaitley and comprising representatives of all states, had on August 5 recommended that the Central government move legislative amendments required for increasing the maximum ceiling of cess leviable on motor vehicles to 25 per cent from present 15 per cent.

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