Govt increases cess on luxury cars to 25% under new GST regime

The Union Cabinet chaired by Prime Minister Narendra Modi cleared an ordinance to increase the cess on mid-size, large cars, luxury cars and SUVs from current 15% to 25% under the new GST regime. The cabinet gave its approval to the proposal of the Finance Ministry to promulgate an ordinance to suitably amend the Goods and Services Tax (Compensation to States) Act, 2017.

The approval would allow increasing the maximum rate at which the Compensation Cess can be levied from 15% to 25% on:

a) motor vehicles for transport of not more than thirteen persons, including the driver [falling under sub-headings 870210, 8702 20, 8702 30 or 8702 90]; and

b) motor vehicles falling under headings 8703.

Reacting to this government move, Pawan Goenka, Managing Director, Mahindra & Mahindra Ltd, said the “Passing of ordinance to increase the limit of cess to 25%, on certain class of vehicles, is along the expected lines.  What is critical to the industry is when, how much and on what criteria will the cess be increased.  Industry has made a representation to the Government and we await the final decision.”

Rohit Suri, President and Managing Director, Jaguar Land Rover India Ltd noted that the “The GST implementation on 1st July removed the cascading impact of multiple taxes applicable in the pre-GST regime, which we understand was one of the primary objectives of the Government. The removal of the cascading impact enabled the Industry to reduce prices and benefit the consumer as well as expand the market, which had been declining because of high taxation. The expansion in demand would have enabled further investments in local manufacturing and job creation across the supply chain including more people in factories, showrooms, workshops and logistics service providers. We earnestly hope that the Government and the GST Council will give due consideration to this matter and desist from raising the cess and putting a dampener on the positive momentum in demand that the industry had started to witness since 1st July.”