GST: Govt notifies increase in cess on luxury cars, SUVs to 25%, price hike likely

New Delhi: The government has notified hike in GST cess on a range of cars from mid-size to hybrid variant to luxury ones to a maximum of 25 percent, from earlier 15 percent. Following assent by President Ram Nath Kovind, the government has notified the Goods and Services Tax (Compensation to States) Amendment Ordinance, 2017. The Ordinance was last week approved by the Union Cabinet, headed by Prime Minister Narendra Modi, and was sent to the President for his approval. It has come into force with effect from 2 September – the date of official gazette notification. With this amendment, taxation on luxury, SUV and other vehicles would be brought at par with that prevailing pre-GST rollout. [caption id=“attachment_4005645” align=“alignleft” width=“380”]  Reuters[/caption] However, the quantum of cess hike in each variety of car would be decided by the GST Council, chaired by Union Finance Minister Arun Jaitley and his state counterparts, in its next meeting on 9 September. Car prices had dropped by up to Rs 3 lakh following the implementation of the Goods and Services Tax (GST) from 1 July and the ordinance is being seen as an attempt to rectify the anomaly where rates of certain common use items had gone up but luxury cars were costing less under the new regime. Large motor vehicles, SUVs, mid-segment cars, large cars, hybrid cars and hybrid motor vehicles attract a cess of 15 percent on top of 28 percent GST. This cess has been hiked to up to 25 percent now. Also a new category has been introduced in the Act where in motor vehicles which has capacity to transport up to 13 people would attract 25 percent cess. The highest pre-GST tax incidence on motor vehicles worked out to about 52-54.72 percent, to which 2.5 percent was added on account of Central Sales Tax, octroi etc. Against this, post-GST the total tax incidence came to 43 percent. Under GST, which replaced over a dozen central and state levies in the biggest tax reform since Independence, cars attract the top tax rate of 28 percent. On top of this, a cess of 1 to 25 percent has been levied for the creation of a corpus to compensate states for any loss of revenue from implementation of the GST.