Increase In Cess Rates On SUVs, Luxury Cars To Dampen Spirit Of Make In India

| October 7 , 2017 , 15:41 IST

The Indian government’s recent move to increase GST (Goods and Services Tax) Cess rates on SUVs (Sports Utility Vehicles) and luxury cars from 15 per cent to 25 per cent is likely to dampen the spirit of Prime Minister Narendra Modi’s ambitious Make in India project.

Though the luxury car market is just 1 per cent of the entire auto industry in India, yet it is an evolving sector and is slowly grabbing the fancy of the consumers.

However, the move to increase the cess rates on such vehicles has not come as great news for the industry.

Companies like Audi India, Mercedes-Benz India has already stated that post this announcement investments, which were planned for the country, is likely to discontinue. This will definitely not go well for Make in India initiative.

Roland Folger, MD & CEO, Mercedes−Benz India said, “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. ”   

Rahil Ansari, Head, Audi India added, “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. This is bound to adversely impact sales by possibly a double-digit reduction and will consequently reduce revenues for the company, dealers and perhaps also tax revenues for the government. While the overall impact will still have to be evaluated in some time, we will be forced to redraw our plans for the Indian market based on future projections in this scenario.”

As a result of the hike in cess rates, Hyundai Motor India, Honda Cars India and Jeep India have already increased the prices of some of their vehicles within a range of 2-5 per cent.

However, the companies have mentioned that in fear of getting prices of vehicles hiked, after the announcement, consumers immediately rushed to the showrooms and made purchases. This led the industry to post healthy domestic sales for the month of September 2017.

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While, sales of Hyundai Motor India went up by 17.4 percent, the same for Honda Cars India jumped to 21 per cent.

Even, Mercedes-Benz India sold record 11,869 units in the January-September 2017 period, clocking 19.6 per cent year-to-date growth. However, Folger said “it always gives an additional momentum to our growth plans when the policy framework is supportive, given our contribution to the economy.”