Germany flags down GST cess on luxury cars

The ordinance passed by Union cabinet last week to increase cess on luxury and other cars under the goods and services tax (GST) has reached diplomatic corridors, as German Embassy has now taken up the matter with the Indian government. Three of the biggest luxury car makers operating in India–Audi, Mercedes-Benz and BMW– are expected to get impacted by the decision.

The Union Cabinet last week gave its approval to increase the cess on mid-sized, large cars, SUVs and luxury cars to 25% from current 15% under the new GST regime. However, further clarity on cess to be levied on each of the segments is expected to come on September 9. President Ram Nath Kovind has promulgated an ordinance and was notified in the Gazette on Sunday. There are also reports that the government may not increase the hike immediately considering a strong demand which emanates during the ongoing festive season.

Though luxury car market is very small (1%) in India presently, it still contributes over 10% in value, the industry figures reveal. It could not be ascertained whether other countries like Japan, South Korea, among others have taken similar steps at the diplomatic level to back their automobile companies operating in India.

Speaking to DNA Money Rahil Ansari, head of Audi India, said that he is hopeful of any breakthrough on the issue, though an ordinance has already been passed by the cabinet. “All the companies have taken up the issue individually. Also, the Embassy has taken up the matter with the government,” said Ansari on the sidelines of the launch of the Audi Q7 40 TFSI Quattro in Mumbai on Monday.

An email sent to the German Embassy in Delhi seeking its response on the issue did not elicit any response till the time of going to press.

According to the industry stakeholders, the development (of increase in cess) is expected to bring the prices of these cars to the pre-GST days or even in some cases even higher. Most of the automobile companies have benefitted from the lower GST rate and had passed the savings to the end-consumers. Some of the manufacturers said they will be forced to re-evaluate their business plans in the light of this development.

The increase in cess 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, Ansari added.

“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,” Ansari added, talking of plans if things do not work out as desired.

The car manufacturers urged the GST Council to carefully evaluate the negative impact on this and 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.

Roland Folger, MD & CEO, of Mercedes-Benz India, too had last week come out strongly against the government’s decision to hike the cess. The segment is “attracting one of the highest rates under GST” “Even without this proposed increase, the luxury industry is already highly taxed which constrains its growth. Now, with this proposed measure the luxury car industry is going to decelerate.” Roland had said.

LUXE HITS A BUMP

  • Car makers urged GST Council to carefully evaluate the tax’s negative impact
  • They sought postponing GST for 6-12 months to evaluate its real impact

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