India Inc on Wednesday expressed its disappointment over Union Cabinet's clearance of an ordinance to increase the state compensation cess limit under GST on automobiles.
The ordinance raises the ceiling on GST cess for luxury vehicles and SUVs from the current 15 per cent to 25 per cent. This can lead to a hike in prices of high-end cars.
"This will increase the post GST price of many vehicle categories from pre-GST level and have a negative impact on sale of such vehicle models in the market," the Society of Indian Automobile Manufacturers (SIAM) said in a statement.
"This is contradictory position of the government that while on the one hand it has identified the automotive industry as a sunrise sector of Indian economy, on the other hand it is being treated as a demerit product."
SIAM pointed out that all the vehicles that were attracting 24 per cent or 27 per cent excise duty in pre-GST regime may potentially attract higher tax under the GST regime because of Wednesday's decision.
"The GST implementation on July 1st removed the cascading impact of multiple taxes applicable in the pre-GST regime... enabled the industry to reduce prices and benefit the consumer as well as expand the market, which had been declining because of high taxation," said Rohit Suri, President and Managing Director, Jaguar Land Rover India.
"The expansion in demand would have enabled further investments in local manufacturing and job creation across the supply chain including more people in factories, showrooms, workshops and logistics service providers."
Pawan Goenka, Managing Director, Mahindra & Mahindra said: "Passing of ordinance to increase the limit of cess to 25 per cent, on certain class of vehicles, is 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."
According to Rahil Ansari, Head, Audi India, the Indian automobile industry is already reeling under high tax rates and that the increase in cess rate will be detrimental to the luxury car segment.
"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 said.
"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."