President promulgates ordinance to raise GST cess on large cars, SUVs to 25%

The hike in the cess over the goods and services tax (GST) on sports uility vehicles (SUVs) and luxury cars to 25 per cent from 15 per cent has received the President's assent with President Ram Nath Kovind promulgating an ordinance enabling an amendment to the GST Act.

With this, the GST impact on medium and big sized cars as well as high-end luxury cars will increase to 43 per cent from 33 per cent earlier.

This, according to the central government, is being done as part of the GST (Compensation to States) Amendment Ordinance, 2017, so as to raise enough funds for devolution to states.

However, the increase in the rate from the 15 per cent levied at present will be effective only after the GST Council notifies it.

The GST Council, which is expected to meet on 9 September in Hyderabad, is likely to decide on the quantum of increase to be implemented. The union cabinet chaired by Prime Minister Narendra Modi had on 30 August approved the proposal for an Ordinance.

The cess is levied on motor vehicles of select specifications over and above a 28 per cent basic GST applicable for all vehicles.

The ordinance notified on Sunday in the official gazette said the change is applicable on all motor vehicles with a capacity of up to 13 persons as well as on all cars where the cess is 15 per cent at present. That includes medium-sized to large cars, SUVs and hybrid cars.

The cess levied on small petrol and diesel cars at the rate of 1 per cent and 3 per cent, respectively, remains unchanged.

The ordinance said the changes in the ceiling come into force at once.

Prices of most SUVs were cut by Rs1.1 lakh to Rs3.5 lakh after the GST rollout on 1 July. This helped car market leader Maruti Suzuki India Ltd increase its domestic sales by 22.4 per cent in July from a year ago. Sales at Mahindra and Mahindra Ltd and Toyota Kirloskar Motor Pvt. Ltd grew 21 per cent and 43 per cent, respectively, in July.

The upward revision in cess will now push up prices and lead to a decline in the sales of bigger vehicles.