Luxury car makers voice disappointment over GST Council's increase in cess

The GST Council's decision to increase the cess on luxury vehicles by an additional 10% is expected to see an increase in the prices of luxury cars.

Roland Folger, MD and CEO at the launch of the Mercedes-Benz New E Class launch. Photo: Mercedes Benz

Key highlights:

Roland Folger said that the luxury car industry has been at the receiving end of arbitrary policies

The current increase in cess along with the hike in on-road taxes will increase the prices of their cars

Rahil Ansari said it will dampen the spirits of not only the companies, dealers and customers but also workers and employees

Luxury car manufacturers on Monday voiced their frustration against the GST Council's decision to increase the cess on luxury cars, SUVs and mid-segment cars. The Finance Ministry in a tweet today said that the GST Council had decided to increase the cess on these cars to 25% from the 15% cess decided earlier.

Roland Folger, MD and CEO, Mercedes-Benz India said they were highly disappointed with the decision and said that the luxury car industry has been at the receiving end of arbitrary policies. He said the current increase in cess along with the hike in on-road taxes will increase the prices of such vehicles well beyond the pre-GST prices.

“We believe this will be a strong deterrent to the growth of luxury cars in this country. As a leading luxury car maker, this will also affect our future plans of expansion under 'Make in India' initiative, which aims at making and selling world-class products in India, with the latest technology for end consumers. We feel deprived as the leading manufacturer of luxury cars in India, who has been championing ‘Make in India’. This decision will also reverse the positive momentum that the industry wanted to achieve with the introduction of GST. With this hike in cess, we expect the volumes of the luxury industry to decelerate, thus offsetting any growth in the potential revenue generation, that could have come with the estimated volume growth,” he said.

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He further said that this decision once again reiterates the need for a long-term roadmap for the luxury car industry and said that the constant shift in policy makes their long-term planning for the market highly risky and they think this would only have an adverse impact on the country's financial ratings.

“By making better technology more expensive, the government is causing more damage to the environment and slowing down the overall growth pace of the country's economic growth, which it is striving to achieve,” he added.

Folger further said, “One of the original benefits expected out of GST was rationalisation of tax rates. Luxury cars and SUVs are one of the segments that long required tax rationalisation, as this segment remains highly taxed. Further, in the pre-GST regime, the taxes to the final customer were varying widely from state to state depending on the VAT applicable in respective states. Also, one month is too short a period to consider an upward revision in rates. The market performance should have been watched for at least 6 months, before it was re-looked. The current proposal of increase in cess clubbed with the increased road tax rates, will take the effective consumer price much above the pre-GST scenario level.”

Another luxury car manufacturer voiced their disappointment over the GST Council's decision to increase the cess.

Rahil Ansari, Head, Audi India said, “Luxury car industry in India, while small in volumes, still contributes over 10% in value. The taxes on this industry were already very high and we expected the unfulfilled potential of this segment to increase after the implementation of GST and rationalisation of taxes. However, the proposal of further increasing the Cess on the luxury car industry will dampen the spirits of not only the companies, dealers and customers but also workers and employees working in this industry. This proposed increase in Cess will most definitely adversely impact the sales. We will be forced to re-evaluate our business plans in light of this development. This move unfortunately is against the spirit of liberal market dynamics and we can only request to reconsider this proposal.”

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