Sports utility vehicles and luxury cars would soon see a rate hike as the government is planning to seek Parliament’s approval to increase cess on them. Under attack for fitment of rates under the Goods and Services Tax (GST), due to which luxury vehicles had become cheaper than earlier, the government is planning to raise the cess by an additional 10%.
The total tax incidence on luxury vehicles and SUVs under the GST is 43% (tax 28%, cess 15%). Earlier, under the VAT regime, the total tax on these vehicles was around 55%. Now, if the government raises cess by 10% more, these vehicles will sell at 53% more tax in place of 43% under GST.
However, to increase the cess, the government will have to take Parliamentary approval since the GST (Compensation to States Act), 2017, caps the maximum rate of cess on motor vehicles at 15%. The government will have to change the law to raise the cap. Sources said, the government will go to Parliament in the current Monsoon Session itself so that the GST Council in its next meeting on September 9 can approve the new cess rate.
“It was noted that after introduction of GST, the total tax incidence on motor vehicles (GST + Compensation Cess) has come down vis-a-vis the total tax incidence in the pre-GST regime. The Schedule to the Goods and Service Tax (GST) (Compensation to State) Act 2017, specifies the maximum rate at which GST Compensation Cess may be collected. In respect of motor vehicles, the maximum rate at which GST Compensation Cess may be collected is 15%,” the Finance Ministry said.
The total tax incidence on luxury vehicles and SUVs under the GST is 43% (tax 28%, cess 15%). Earlier, under the VAT regime, the total tax on these vehicles was around 55%. Now, if the government raises cess by 10% more, these vehicles will sell at 53% more tax in place of 43% under GST.
However, to increase the cess, the government will have to take Parliamentary approval since the GST (Compensation to States Act), 2017, caps the maximum rate of cess on motor vehicles at 15%. The government will have to change the law to raise the cap. Sources said, the government will go to Parliament in the current Monsoon Session itself so that the GST Council in its next meeting on September 9 can approve the new cess rate.
“It was noted that after introduction of GST, the total tax incidence on motor vehicles (GST + Compensation Cess) has come down vis-a-vis the total tax incidence in the pre-GST regime. The Schedule to the Goods and Service Tax (GST) (Compensation to State) Act 2017, specifies the maximum rate at which GST Compensation Cess may be collected. In respect of motor vehicles, the maximum rate at which GST Compensation Cess may be collected is 15%,” the Finance Ministry said.
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