Hike in cess on luxury cars to impact growth, say auto companies

New Delhi: Automobile firms, including Mercedes-Benz, Audi and JLR, on Wednesday 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 on Wednesday 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.