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Price Hike on Luxury Segment To 25 Percent Due To GST Implementation

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The GST Council has sanctioned a proposal on Hike Cess on SUVs, luxury and large, mid-sized cars from present 15% to 25%. These mid-size segments to luxurious vehicles have become extremely cheaper after the implementation of GST on 1st July 2017. Beneath the newest tax regimen, vehicles grab the top tax-rate of 28%, apart from grabbing a Cess of 1 to 15% so as to develop a quantity to compensate for the loss of revenue due to GST implementation. The manufacturers have decreased the rate of the vehicles after the implementation of the GST and now to compensate those losses, they are again increasing the price rate of luxury and SUV vehicles.

The Finance Ministry declared after implementation of GST, the total Tax rate on motor vehicles has decreased vis-à-vis the total occurrence in the pre-GST regime. “The GST Council declared this problem in its 20th meeting takes place on 5th August and suggested that the central government may shift legislative amendments needed for augmenting the utmost ceiling of Cess leviable on motor vehicles decreasing beneath heading 8702 & 8703 to 25% instead of current 15%”, the statement read. However, the option on when to increase the actual Cess to be levied on the same will be taken by GST Council in due course.

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An amendment to the agenda to section 8 of the GST Act, 2017 is needed to augmented compensation Cess. The Vehicles which arrive under headings 8702 & 8703 incorporate motor vehicles, large cars, SUVs and mid-segment that can take more than 10 persons, but less than 13. Additionally, hybrid vehicles having an engine capacity of about 1500 cc & mid-segment hybrid vehicles of less than 1500 cc also lies under this section.

Price rate of most of the SUVs arrives down significantly between Rs. 1.1 to Rs. 3 lakh due to the implementation of GST that considered over a dozen central & state levies like VAT, service tax, and excise duty from July 1st onwards. As a result, leading car manufacturers Maruti Suzuki India domestic sales increase to 22.4% in the month of July from a year ago. Furthermore, sales at Toyota Kirloskar Motor Private Limited and Mahindra Limited have grown towards 43% and 21% respectively in the month of July. Any uphill revision in the cell will lead to a boost in price rates of larger vehicles.

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Makers of luxury and SUVs cars have criticized the plan of GST Council to increase Cess; caution the move will pave ways for production cuts & job losses and hollow the “Make in India” initiative. The government declares the purpose of implementing the tax reform was not to decrease the tax burden on items tobacco and luxury cars. The finance minister says” If at all a reprieve (in tax burden) is to be provided, it must be provided to products consumed by normal man”, an addition that an individual who can pay for a car priced at INR 1 crore will not mind purchasing it for INR 1.02 crore.

The highest pre-GST tax incidence on the motor vehicle seems to work out in the range of 52 to 54.72 percent, to which about 2.5% was included on account of Octroi and CST etc. In contrary to this, Post-GST, the total tax-incidence seems to be around 43%. Whilst all cars attract towards the peak GST rate of 25%, mid-segment, large motor vehicles, SUVs, hybrid vehicles, large scars and hybrid motor vehicles attracts a tax of 15% on top of it. Even, small petrol vehicles less than 4-meters long and 1200 cc are attracted for a Cess of 1% and small diesel vehicles less than 4-meters and 1500-cc engine are levied with a Cess of 3%.

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