NEW DELHI: The Union Cabinet today approved the increase in the maximum rate at which the Compensation Cess can be levied from 15 percent to 25 percent on motor vehicles covering mid-size cars, SUVs and luxury vehicles. This hike on cess will be in addition to the 28 percent basic GST slab applicable on them.
This move is expected to dent sales of these vehicle segments. Earlier OEMs had slashed prices of vehicles across the spectrum post the GST announcement to as high as Rs 7 lakh on luxury cars.
Now the new rates will call for further revision in prices and redrawing of corporate strategies.
Rahil Ansari, Head Audi India expressed his displeasure by saying: “The taxes on this industry are already very high and this increase in cess rate will be detrimental to the luxury car industry as we will be forced to hike our prices to levels higher than pre-GST period. This is bound to adversely impact sales by possibly a double-digit reduction and will consequently reduce revenues for the company, dealers and perhaps also tax revenues for the Government. While the overall impact will still have to be evaluated in some time, we will be forced to redraw our plans for the Indian market based on future projections in this scenario.”
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The luxury car market in India, while still niche in terms of volumes, contributes over 10 percent in value to the total automobile market.
While more positive initiatives from the Government are required for this upmarket segment to put it back on track and increase its contribution to the Indian economy, the reversal of GST rates will clearly prove to be a setback.
“We request the GST Council to carefully evaluate the negative impact on this and, if a decision is taken on a 10% cess increase, postpone the implementation for another 6-12 months to evaluate the real impact of the GST on the automobile sector, in particular the luxury segment. This will surely prove that the overall effect with a lower cess percentage of 15% is generating higher tax revenues than expected,” is Ansari’s suggestion.
Meanwhile senior forecasting analyst Gaurav Vangaal of IHS Markits fears that their earlier forecast of a double digit growth by the luxury car segment in CY2017 and 2018 would now dip to a single digit and slow down this market.
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Similarly SUVs that were leading the growth in the passenger vehicle segment would also be impacted. Indian consumers in particular have been increasingly showing a tendency to prefer SUVs and crossovers over sedans.
Now sales forecasts will have to be revised as well as the price tags of affected vehicles to factor in the new changes that do not portend good tidings for the industry.