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SUVs, luxury cars may cost more as GST Council plans to hike cess

LiveMint logoLiveMint 07-08-2017 Gireesh Chandra Prasad

New Delhi: Sports utility vehicles (SUVs) and luxury cars, which became cheaper after the 1 July rollout of the goods and services tax (GST), may cost more with the GST Council, federal indirect tax body, considering a plan to raise cess on them from 15% now to up to 25%.

The proposal will be taken up at the Council’s meeting in Hyderabad scheduled for 9 September, a person privy to the development said, on the condition of anonymity. “This proposal could not be taken up at Saturday’s meeting as other issues occupied a lot of time. This and other pending proposals will be taken up at the next meeting,” said the person.

The GST Council, at its 20th meeting in the capital on Saturday, made some adjustments in tax rates and resolved to put in place screening panels at central and state levels to check any profiteering tendency in the industry during the transition to the new indirect tax regime.

The council had attempted to fix GST rates on goods and services in such a way that the tax burden on most items remains at previous levels, while in some cases, it was lowered in view of the changing consumption pattern. Besides, the efficiency in the new tax regime also contributed to lowering the tax burden on many items.

Accordingly, prices of most SUVs were cut between Rs1.1 lakh and Rs3.5 lakh. PTI reported on 19 July that Fiat Chrysler Automobile (FCA) India Pvt. Ltd. reduced prices of its Jeep model range by up to Rs18.49 lakh in order to pass on the benefit of GST to the customers.

Considering a sharp cut in prices of SUVs might send the signal that the tax reform is making luxury items cheaper, eroding the government’s revenue, the council wants to readjust the cess on cars.

As per the council’s decision on 18 May, large motor vehicles, SUVs, mid-segment cars, large cars, hybrid cars and hybrid motor vehicles attract a cess of 15% in addition to the GST rate of 28%. Small petrol cars attract a cess of 1%, while small diesel cars attract a cess of 3%, besides the 28% GST rate.

The cess collected on cars, tobacco and coal will be used to compensate the revenue loss of states from implementing GST.

States are pitching for changes in tax rates on a few other items. Phosphoric acid, used in making fertilizer, attracts 18% GST, although fertilizers are taxed only at 5%, causing an inverted duty structure, some of the sates argued before the Council. They wanted the raw material also to be taxed at 5%.

However, the council is keen to keep rate revisions to the minimum in order to allow the new indirect tax system to settle down, while quickly responding to calls for correcting anomalies.

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