Hyundai, Mahindra, Mercedes, Audi & Jaguar worried about the new GST cess

The union government passed an additional 10% cess on cars that are longer than 4 meters yesterday. After the implementation of GST, the prices of vehicles dropped massively. With the new tax regime, the prices of such vehicle will again rise steeply. India is a price sensitive market and new cess will hurt the sales of the vehicles. The auto industry has reacted to the new cess and we have gathered quotes from a few manufacturers.

Mahindra and Mahindra MD, Dr Pawan Goenka said,

“Passing of ordinance to increase the limit of cess to 25 percent, 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.”

Hyundai India MD & CEO Mr. Y K Koo has this to say about the latest extra cess planned on large cars and SUVs,

“We don’t know what’s going on. What is luxury? There is a need for more clarity from the GST Council regarding definition of various provisions such as engine size and vehicle length. We are little confused regarding extra cess that the government is planning to levy.“

Audi India head, Rahil Ansari said,

“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.”

“The luxury car industry in India, while small in volumes, still contributes over 10 percent in value. While the segment definitely needs more positive initiatives from the Government to be able to deliver a bigger contribution to the Indian economy, this scenario is clearly a setback.”

Mercedes-Benz India, MD and CEO, Roland Folger said,

“Unless they limit the hike to 1 or 2 % or enforce it after festival season, it will be difficult to sustain the growth.The tier 2 cities have lot of potential. Kerala accounts for 7% of our total national sales with Kochi grabbing 50% share of it. The lower tax helps to push the sales and in turn, the government also earns more. It is a wrong thinking that higher taxes will mean higher financial gain for the government”

Jaguar Land Rover India, President, Rohit Suri said,

“GST removed the cascading impact of multiple taxes… and that enabled the industry to reduce prices and 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 — factories, showrooms, workshops, and logistics service providers.”

Society of Indian Automobile Manufacturers (SIAM) issued a statement saying,

“The cabinet clearance of the government proposal for an ordinance to increase the State Compensation Cess limit under GST from 15 percent to 25 percent on automobiles is an unfortunate decision. Although the clearance of the ordinance is just an enabling clause for the GST Council to be able to increase the cess, it is clearly evident that the government’s  intention is to increase the overall tax burden on many different categories of vehicles. This will increase the post GST price of many vehicle categories from pre-GST level and will have a negative impact on sale of such vehicle models in the market. This is a contradictory position of the government that while on the one hand it has identified the automotive industry as a sunrise sector of Indian economy, on the other hand it is being treated as a demerit product.”

GST tax rates on cars before the cess:

Total tax on sub-4 meter (small) cars with petrol engines measuring less than 1,200 cc: 28 %

Total tax on sub-4 meter (small) cars with diesel engines measuring less than 1,500 cc: 28 %

Total tax on 4 meter+ (large) petrol and diesel cars: 43 % (28 % GST plus 15 % cess)

GST rates on cars after the cess:

Total tax on sub-4 meter (small) cars with petrol engines measuring less than 1,200 cc: 29 % (28 % GST plus 1 % cess)

Total tax on sub-4 meter (small) cars with diesel engines measuring less than 1,500 cc: 31 % (28 % GST plus 3 % cess)

Total tax on 4 meter+ (large) petrol and diesel cars: 53 % (28 % GST plus 25 % cess)

All the cars above 4-metre will see the 10% increase in the prices. The base version of Hyundai Verna will see a price increase of Rs. 80,000 after the tax. The base variant of diesel Jeep Compass will see a rise of around Rs. 1.54 lakh. The Innova base model will see a hike of Rs. 1.3 lakh after the tax.