GST cess on cars hiked to 25%: Auto cos lash out, say move against free-market spirit, will hit expansion

New Delhi: Luxury vehicle manufacturers on Monday hit out at the move to hike cess on large cars and sports utility vehicles (SUVs) to 25 percent, saying it was against the spirit of liberal market dynamics and would affect future plans of expansion under Make in India initiative.

Toyota Kirloskar Motor, Mercedes-Benz, Audi and BMW were unanimous that increase in cess on large, luxury cars and SUVs that had become cheaper after GST rollout would dampen the spirits of the industry across the entire value chain.

The companies also said a constant shift in policy makes long-term planning for the market highly risky, and it would only have an adverse impact on India's financial ratings. Under the current GST rates, SUVs, large and luxury cars attract top tax rate of 28 percent with an additional 15 percent cess.

"The message that we are getting from the government from such a move is that it is not looking at the auto sector to spur economic growth," Toyota Kirloskar Motor Vice Chairman and Whole Time Director Shekar Viswanathan told PTI. He further said increasing cess on large cars and SUVs will "selectively benefit some companies, while putting others at a disadvantage".

Mercedes-Benz India MD and CEO Roland Folger said the company was highly disappointed with the move and it would be a strong deterrent to the growth of luxury cars in this country. "As a leading luxury car maker, this will also affect our future plans of expansion under Make in India initiative, which aims at making and selling world-class products in India, with the latest technology for end-consumers," he said in a statement.

Getty Images

Getty Images

Expressing similar sentiments, Audi India Head Rahil Ansari said: "We will be forced to re-evaluate our business plans in light of this development. This move unfortunately is against the spirit of liberal market dynamics and we can only request to reconsider this proposal."

This proposed increase in cess will most definitely adversely impact the sales, he added. Companies such as Audi, Mercedes-Benz, Toyota had reduced prices on several of their luxury cars and SUVs by up to Rs 10 lakh passing on GST benefits to consumers. Ansari further said although the luxury car industry in India is small in volumes, it contributed over 10 percent in value terms.

"The proposal of further increasing the cess on the luxury car industry will dampen the spirits of not only the companies, dealers and customers but also workers and employees working in this industry," he added.

The taxes were already very high and the industry was expecting that the unfulfilled potential of this segment to increase after the implementation of GST and rationalisation of taxes, Ansari added.

BMW Group India President Vikram Pawah also said that long-term stability in tax reforms and regulations are of paramount importance to foster growth of any industry in the country. He further said, "While BMW Group India welcomes the implementation of the Goods and Service Tax (GST) in India, immediate changes and fluctuations on motor vehicles cess will adversely affect the stability and growth of the automotive industry in India."

The finance ministry today said the GST Council has approved a proposal to hike cess on large cars and SUVs to 25 percent from 15 percent now. A decision on when to raise the actual cess leviable on the same will be taken by the GST Council in due course.

Folger said the move once again reiterated the need for a long-term road map for the luxury car industry, "which has been at the receiving end of arbitrary policies". "The constant shift in policy makes our long-term planning for the market highly risky and we think this would only have an adverse impact on the country's financial ratings," Folger said.

He claimed that the government was causing more damage to the environment and slowing down overall growth pace of India's economic growth, which it is striving to achieve by making better technology more expensive.

"With this hike in cess, we expect the volumes of the luxury industry to decelerate, thus offsetting any growth in the potential revenue generation, that could have come with the estimated volume growth," Folger added. He further said one month was too short a period to consider an upward revision in rates and market performance should have been watched for at least six months, before it was re-looked.

"The current proposal of increase in cess, clubbed with the increased road tax rates, will take the effective consumer price much above the pre-GST scenario level," Folger said.

Updated Date: Aug 08, 2017 07:35 AM

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