Luxury cars, SUVs to get costlier as Cabinet approves ordinance to hike cess from 15% to 25%

New Delhi: Sports utility vehicles (SUVs), mid-size, large and luxury cars are set to become costlier as the Union Cabinet on Wednesday approved promulgation of an Ordinance to increase the cess to 25 percent, from 15 percent now under the new GST regime.

The new levy is in addition to taxes on the sale of luxury vehicles.

After the cap on cess is raised, the total tax under Goods and Services Tax (GST) on such vehicles will go up to 53 percent from the current 43 percent as these have been placed under the highest tax slab of 28 percent.

"The proposal of imposition of higher cess has been cleared," PTI said quoting a source after the Cabinet meeting.

The GST Council had on August 5 approved raising cess on SUVs, mid-size, large and luxury cars that had become cheaper post GST rollout on July 1.

But raising the cess requires an amendment to the Schedule of section 8 of the GST (Compensation to a State) Act, 2017.

The highest pre-GST tax incidence on motor vehicles worked out to about 52-54.72 percent, to which 2.5 percent was added on account of Central Sales Tax, octroi etc.

Against this, post-GST the total tax incidence came to 43 percent.

So, to take the tax incidence to pre-GST level, the highest compensation cess rate required is 25 percent.

Prices of most SUVs were cut between Rs 1.1 -3 lakh following the implementation of GST, which subsumed over a dozen central and state levies like excise duty, service tax, and VAT from July 1.

With the increase in cess, the cuts will be reversed.

Under GST, a cess was levied on demerit goods like cars, tobacco, and coal to create a corpus for compensating states for any loss of revenue from their taxes like VAT being unified with central levies like excise duty and service tax in the GST.

Cars attract the top tax rate of 28 percent. On top of this, a cess of 1 to 15 percent is levied for the creation of the state compensation corpus.

The GST Council, the apex tax rate setting body under the Goods and Services Tax (GST) regime, may in its next meeting on September 9 decide on the date when the increased cess will be applicable.