GST Council moots 10% hike in cess on SUVs, luxury cars

SUVs and luxury cars are likely to get expensive as the GST Council that oversees the implementation of the goods and services tax (GST) has recommended raising the cess, which is levied over and above the base GST rate, on SUVs and luxury cars from 15 per cent to 25 per cent.

The GST Council at its 20tyh meeting on Saturday recommended an increase in the compensatory cess on SUVs and big luxury cars by 10 per cent to 25 per cent from the existing 15 per cent.

The GST Council considered the issue of cess leviable on motor vehicles and recommended that the central government may move legislative amendments required for increase the maximum ceiling of cess leviable on motor vehicles, including SUVs, to 25 per cent instead of the present 15 per cent,

The Council, however, said the decision on when to raise the actual cess leviable on SUVs will be taken by the GST Council in due course.

The Council noted that with the introduction of GST, the total tax incidence on motor vehicles (GST + Compensation Cess) has come down vis-a-vis the total tax incidence in pre-GST regime. The schedule to the Goods and Service Tax (GST) (Compensation to State) Act 2017, specifies the maximum rate at which the goods and service tax compensation cess may be collected. In respect of motor vehicles, the maximum rate at which GST Compensation Cess may be collected is 15 per cent.

Once the amendment to the Act comes into effect, the customers willing to buy SUVs and sedan in the domestic market will have to shed more money. Cars, which are above 4 metres in length with engine displacement above 1500cc fall into the Indian luxury car segment.

On the other hand, small cars which are below 4 metres with engine capacity of 1200cc attract 1 per cent on petrol variants while diesel cars under 4-metre length and up to 1500cc displacement sees a cess of 3 per cent.

Ever since the GST bill come into effect, all the cars fall in the highest tax bracket of 28 per cent wherein the SUVs and other luxury vehicles got a price cut as 17 state and central taxes and 23 cesses were incorporated under GST.

Many manufacturers also passed on the GST benefits to its customers while some car manufacturers were compelled to increase the prices of small cars after the cess was imposed.

The cess was introduced for compensating the states any loss of revenue because of GST imposition. Moreover, the act has a condition for compensating the states for a time span of 5 years as per the GST (Compensation to the States for Loss of Revenue) Bill, 2016.