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Luxury Cars Prices to Go Up Significantly if 25% Cess Comes in Force

The GST Council has now approved a proposal to hike cess on them from 15 percent to 25 percent.


Updated:August 22, 2017, 5:17 PM IST
Luxury Cars Prices to Go Up Significantly if 25% Cess Comes in Force
Mercedes-Benz GLE Coupe OrangeArt Editions. (Photo: AFP Relaxnews)
German carmaker Mercedes-Benz today said the prices of luxury cars in India may go up by 5 percent as compared to pre-GST era if the government hikes cess on such vehicles to 25 percent. The luxury car industry can contribute a lot in terms of job creation in the country on the back of "sustainable direction" on part of the government as far as prices are concerned, it said. "In the worst case scenario prices will be higher than the pre-GST ear and all announcements that the GST will be a benefit to the people won't be true," Mercedes-Benz MD & CEO Roland Folger told PTI.

When asked by how much the prices can go up, he added: "They can go up as high as 5 percent as compared to pre GST prices and in this case around the country." Folger said that the impact of price hike would be across the country due to "big alignment" of taxes across the states. "If you apply the new 10 percent plus, you are basically boosting everybody up by ten percent so in some states it would mean significant increase," he added. He said the company is currently in a "wait and watch" mode, a situation that has been the "central running theme for them" in the past two years.

Under the GST regime, large cars with engine capacity greater than 1,500 cc and SUVs with length more than 4 metres and engine greater than 1,500 cc attract cess of 15 percent in addition to the top tax rate of 28 percent. The overall tax incidence on locally-assembled luxury cars has come down from around 55 percent earlier to 43 percent in the Goods and Services Tax regime, which kicked in from July 1.

Several luxury car makers, including Mercedes, Audi and Jaguar Land Rover, have already reduced prices to pass on the benefit to customers. The GST Council has now approved a proposal to hike cess on them from 15 percent to 25 percent. The decision on when to raise the actual cess leviable on the same will be taken by the council in due course. Folger said the continued changes in policy is making it difficult for the company to discuss future business plans with its headquarters in Germany.

"It would (increase in cess) make our discussion with Germany very difficult because the business case won't work anymore and that's a shame because we have the potential to significantly increase jobs in this country," he added. Doubling company's workforce in India is not out of question but it needs to have sustainable direction as far as prices are concerned, Folger noted. "India has huge potential to create jobs in the luxury car segment...these jobs are not getting created...so if we only stare at issues like how much taxes can we make it is very very short sighted view unfortunately," he added.

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