SUVs, luxury cars to cost more as Cabinet clears cess hike

The Cabinet has approved increasing the cess on mid-size, large cars and SUVs to 25 per cent from the current 15 per cent, television channels reported on Wednesday, citing government sources. 

Prices of most SUVs were cut between Rs 1.1 lakh and Rs 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. But with the hike in cess, the cuts will be reversed.

The GST Council, the apex tax rate setting body under the Goods and Services Tax (GST) regime, had on August 5 approved raising cess on SUVs, mid-sized, large and luxury cars that had become cheaper post GST rollout on July 1. 

The move adversely impacts Mahindra & Mahindra, Toyota, and luxury carmakers such as Mercedes, BMW, Audi and JLR. The decision has upset the growth plans of the luxury car industry, which had seen a flat performance in 2016, owing to demonetisation and the ban on 2,000cc diesel cars in the National Capital Region for the first eight months of the year. The decision to increase the cess was taken after the Council found the taxes on these cars were lower under the GST regime than the indirect taxation system.

Prices of most such vehicles had turned significantly cheaper in most states following the introduction of the GST on July 1. Toyota’s Fortuner had turned cheaper by Rs 2.17 lakh and the Innova by Rs 1 lakh. Most luxury cars had also turned cheaper by as much as 8-10 per cent in many states.