Hike in cess on luxury cars, SUVs to impact growth: Auto companies

Showroom attendants polish a vehicle under a Jaguar logo at a Jaguar Land Rover showroom in Mumbai (Photo: Reuters)
Automobile firms, including Mercedes-Benz, Audi and JLR, today said the proposed hike in cess on luxury cars and SUVs will adversely impact growth momentum of the segment.

They also criticised the government's "hurry to implement the hike in cess" saying a review could have been taken after six months when impact of GST would have been clearer.

The Cabinet today approved promulgation of an ordinance to amend the GST compensation law to pave the way for increasing cess on mid and large cars to 25 per cent, from 15 per cent.

"This decision, contradictory to the requirement of creating a sustained demand for the luxury car in this market, would rather affect the growth momentum adversely," Mercedes- Benz India MD & CEO Roland Folger said in a statement.

The automotive segment has not even settled in to see the effect of the marginal relief in terms of rationalisation of taxes in the GST regime, he added.

Folger further said the auto industry attracts one of the highest rate under the GST and even without the proposed increase the luxury segment is already highly taxed, which constrains its growth.

"Now, with this proposed measure, the luxury car industry is going to decelerate. If at all it was required, a review could have been taken after six months when the outcome of GST regime would have been clearer," he added.

Expressing similar views, 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".

He asked the GST Council to "carefully evaluate the negative impact on this and, if a decision is taken on a 10 per cent cess increase, postpone the implementation for another 6-12 months to evaluate the real impact of the GST on the automobile sector, in particular the luxury segment".

Mahindra & Mahindra Managing Director Pawan Goenka, however, said the passing of ordinance to increase limit of cess to 25 per cent on certain class of vehicles, was 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," he added.

Jaguar Land Rover India Ltd President and Managing Director Rohit Suri said reduced prices after GST implementation had helped in expanding the market, which had been declining because of high taxation.

Expansion in demand would have helped the industry invest more in local manufacturing and job creation across the value chain, he added.

"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 July 1," Suri said.

Grant Thornton India Partner Sridhar V said the ordinance sets right the anomalies which crept in while the rates were finalised for the passenger car segment.

However, the additional 10 per cent cess will have a dampening impact on the otherwise increased demand expectation for luxury cars and SUV, which in recent times have been picking up, he added.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel