Union Cabinet Clears Imposition of Higher GST cess on SUVs, Mid-Size, Large and Luxury Cars

The Cabinet today cleared promulgation of an Ordinance to increase the cess on mid-size, large cars and SUVs from current 15 percent under the new GST regime. The proposal before the Cabinet was to hike the cess rate on these cars to 25 percent. "The proposal of the imposition of higher cess has been cleared," a source said after the Cabinet meeting. The GST Council had on August 5 approved raising cess on SUVs, mid-size, large and luxury cars that had become cheaper post GST rollout on July 1. But raising the cess requires an amendment to the Schedule of section 8 of the GST (Compensation to a State) Act, 2017.

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. So, to take the tax incidence to pre-GST level, the highest compensation cess rate required is 25 percent. Prices of most SUVs were cut between Rs 1.1 -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.

After the imposition of the new GST cess the prices of the newly launched compact SUV Jeep Compass are expected to be increased by Rs 1 lakh – Rs 1.5 lakh. The Toyota Fortuner and Ford Endeavor are now likely to cost Rs 2.5 lakh – Rs 3 lakh more. Earlier, passing on to customers the benefits under the GST regime that was applied on 1st July, Toyota revised prices of its big cars by up to 13 percent and Ford India also reduced their vehicle prices by up to 4.5 percent.

With the increase in cess, the cuts will be reversed. Under GST, a cess was levied on demerit goods like cars, tobacco, and coal to create a corpus for compensating states for any loss of revenue from their taxes like VAT being unified with central levies like excise duty and service tax in the GST. Cars attract the top tax rate of 28 percent. On top of this, a cess of 1 to 15 percent is levied for the creation of the state compensation corpus. The GST Council, the apex tax rate setting body under the Goods and Services Tax (GST) regime, may in its next meeting on September 9 decide on the date when the increased cess will be applicable.

(With inputs from PTI)

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