GST Cess might increase to 25% on cars!

Discussion in 'Car News' started by Yogesh Sarkar, Aug 27, 2017.

  1. Yogesh Sarkar

    Yogesh Sarkar Administrator

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    Bad news for car buyers, the GST cess on mid-size and large cars, along with SUVs might up from 15% to 25% this week, if the cabinet decides to bring in an ordinance to this effect!

    The Cabinet may this week consider issuing an ordinance to increase the cess on mid-size, large cars and SUVs to 25 per cent from 15 per cent under the GST regime at present.

    The GST Council, the apex tax rate setting body under the Goods and Services Tax 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.

    But, for raising the cess requires an amendment to the Schedule of section 8 of the GST (Compensation to a State) Act, 2017.

    "The Cabinet will in next few days consider amending that through the issue of an ordinance," an official said.

    Views of ministries like road, transport and highways and heavy industries will be taken before hiking of the cess, the official added.

    An ordinance is issued when Parliament is not in session to approve a legislation or change in a legislation.

    The ordinance has to be replaced with a proper legislation with the approval of Parliament within six months of its issuance.

    Under GST, a cess was levied on demerit goods like cars, tobacco, and coal, to create a corpus for compensating states for any loss of revenue from their taxes like VAT being unified with central levies like excise duty and service tax in the GST.

    Cars attract the top tax rate of 28 per cent.

    On top of this, a cess of 1 to 15 per cent is levied for the creation of the state compensation corpus.

    The official said after the introduction of GST, the total tax incidence on motor vehicles (GST plus compensation cess) has come down when compared with the total tax incidence in the pre-GST regime.

    To rectify the anomaly, the GST Council, headed by Union Finance Minister Arun Jaitley and comprising of representatives of all states, had on August 5 recommended that the Central government move legislative amendments required for increasing the maximum ceiling of cess leviable on motor vehicles to 25 per cent from present 15 per cent.

    Once the law is amended, the GST Council will decide on the date when the increased cess will be applicable, the official said, adding the next meeting of the panel is scheduled to be held in Hyderabad on September 9.

    The highest pre-GST tax incidence on motor vehicles worked out to about 52-54.72 per cent, to which 2.5 per cent was added on account of Central Sales Tax, octroi etc.

    Against this, post-GST the total tax incidence came to 43 per cent.

    So, to take the tax incidence to pre-GST level, the highest compensation cess rate required is 25 per cent.

    Prices of most SUVs were cut between Rs 1.1 lakh and Rs 3 lakh following implementation of GST, which subsumed over a dozen central and state levies like excise duty, service tax, and VAT from July 1.

    Presently, large motor vehicles, SUVs, mid-segment cars, large cars, hybrid cars and hybrid motor vehicles attract a cess of 15 per cent on top of 28 per cent GST.

    Small petrol cars of less than four-meters and 1,200cc attract a cess of 1 per cent, while small diesel cars of less than four-meters and 1,500cc engine attract a cess of 3 per cent.

    Source: Times of India
     
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  2. Yogesh Sarkar

    Yogesh Sarkar Administrator

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    And the GST CESS has been hiked to 25%, which essentially means luxury cars and SUVs will now attract 28 + 25 = 53%. Effectively rolling back earlier price cuts announced by car manufacturers.
     
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  3. deepam

    deepam Super User

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    Recent GST proposal makes more sense.
    1. Small cars [<4m, Engine Diesel <1.5L and Petrol <1.2L] - no change - 29% or 31%
    2. Medium Cars [>4m, <2.o L] - 43% to 45%
    3. Large Cars [>2.0 L] - 43% to 50%
     
  4. Yogesh Sarkar

    Yogesh Sarkar Administrator

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    Not really.

    This is what Roland Folger, MD & CEO, Mercedes−Benz India said, ”The decision to increase the Cess yet again is very unfortunate and totally overlooks the contribution we make to the industry and to the economy. Though luxury car industry’s volume contribution is very low, our value wise contribution is much higher and that has immense potential to grow even more in the future, had there been fair taxation. However, by continuous taxation of the segment, the overall revenue generation is going to be hurt, as the increase in price is going to hurt demand. It seems the contribution of luxury car industry to the total PV market in India will remain constricted, though in the other developed economies, it is on a higher side and continues to rise gradually. With this increase in Cess now, the prices are bound to leap back to the pre-GST regime, in some cases higher than the pre-GST regime, thus negating altogether the benefits of GST regime. ”

    Tax now is:

    Small cars (up to 1200cc petrol and 1500cc diesel): GST 28% + 1-3% Cess = 29 % on petrol and 31% on diesel

    Mid size: GST 28% + 17% Cess = 45%

    Luxury Cars: GST 28% + 20% Cess = 48%

    SUVs: GST 28% + 22% Cess = 52%
     
  5. deepam

    deepam Super User

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    Luckily a new segment got created else 43% would have become 52 or 53%.

    People on Lease rentals owning SUV [bought vehicle Pre-GST] will be worst affected!
     
  6. deepam

    deepam Super User

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    It is sad that Pre-GST bought vehicles; Lease Rental issue is not addressed.
    I do not understand when Excise Duty is already paid for Pre-GST vehicles, why is government demanding GST+Cess be paid. In this case, there should have been lower GST [12 / 18% based on small or large cars] to have been levied.
     
  7. Theloststory

    Theloststory Active Member

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    Increasing car prices, increasing fuel prices, bad quality roads, long traffic jams, poor public transport, I should invest in A Skype Pro account and sit at home.
     
  8. Yogesh Sarkar

    Yogesh Sarkar Administrator

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    Price of Tata Storme and Hexa has been raised by Rs. 67,000 to Rs. 96,000, based on the variant
     
  9. Big Daddy

    Big Daddy Super User

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    What was the tax before GST? It is hard to understand what was the actual increase. For example, if tax earlier was 10% and GST is 28% then increase is 18%.
     
  10. deepam

    deepam Super User

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    =============
    There were various taxes:
    1. Excise Duty ranging from 24 %, 32% ... [Size of the vehicle].
    2. VAT - 12.5% or 14.5% [Place of sale, Delhi and UT were at 12.5%, rest 14.5%]
    3. Add 1% cess.
    These all was getting paid multiple times [parts like Shock absorber, bearings, seats, tyres ...etc car manufacturer used to pay when the parts entered the factory, then on the final product again - the tax was applied].
    Under GST, based on the part defined by an international code HSN code - the manufacturer has to only pay the extra tax for the value that is been added. Now for incoming parts depending on the category; GST charged are 12%, 18% & 28%. Once the car rolls out of the factory - the manufacturer pays tax of 28% plus cess and he will get Tax credit for all the parts in the car. In the long run, the cost to the manufacturer will be only without Tax. Hence the Tax is applied only once.
    Ideally the car manufacturer should remove the GST that is paid by him while procuring the parts. All this will take about 6 to 9 months and after which the real benefit of GST will be seen by manufacturer and subsequent increase in prices of the car will be delayed by couple of months. Manufacturers instead of dropping the Ex-showroom price in my opinion may resort to providing varying discount levels.
    So in my opinion by Mar/April 2018 things will be sorted out and one may get a better deal, while buying new car.

    Keeping GST changes, following car launches were deliberately delayed:
    1. Jeep Compass [28% GST plus 17% cess]
    2. Tata Nexon [28% GST plus 3% cess]
    To ensure the prices were rolled out competitively to attract customers. It has been favourable for Jeep has lot of people are walking to the showroom.

    Though I am not a financial analyst by profession, shared info to best of my knowledge and understanding.
     

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