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Cabinet approves Ordinance to hike cess cap on luxury cars, SUVs from 15% to 25%

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The Union Cabinet approved a proposal on Wednesday to promulgate an ordinance that will allow hiking the cap on cess of SUVs, large, and luxury cars to 25 percent from 15 percent now.

The ordinance would come into effect after it receives Presidential assent, which will enable amendments in the GST (Compensation to State) Act, 2017. The Central Board of Excise and Customs will issue a formal notification on the raised cess cap.

“This was in pursuance of the last meeting of the GST Council”, finance minister Arun Jaitley told reporters after the Cabinet meeting.

Two out of 12 categories of vehicles will be affected by the hike in the cess cap.

“Pursuant to the implementation of GST, the price of vehicles of had substantially come down. The cess was to be levied on large and luxury vehicles. The maximum taxation under GST is 28 percent. The cess cap has now been increased from 15 percent to 25 percent,” Jaitley said.

The GST council is now entitled to take a decision, when and by how much it decides to increase the cess. Therefore, an enabling Ordinance has been recommended to the government, the finance minister said.

Earlier this month, the Jaitley-headed GST (Goods and Services Tax) Council had recommended hiking the cap on cess on luxury cars and some SUVs, a decision that automobile companies fear would raise the price of these class of vehicles.

The higher cess is unlikely to come into effect before September 9, the next date for the GST Council’s meeting in Hyderabad.

In May, the Council decided to keep all cars in the highest tax slab of 28 percent. However, it was decided that a 15 percent ad valorem cess over and above the tax rate will be levied on large motor vehicles, SUVs, mid-segment, large, hybrid cars and hybrid motor vehicles. The revenue from the cess would then ultimately go to the compensation kitty of the states. The cap on this cess has now been increased to 25 percent.

Under GST, the states will receive provisional compensation from Centre for loss of revenue due to abolition of taxes such as VAT (value added tax), octroi and implementation of GST. The Council had decided that the compensation would be met through levy of a 'GST Compensation Cess' on luxury items and sin goods like tobacco, for the first five years.

The finance ministry's indirect tax policy making body CBEC (Central Board of Excise and Customs) has maintained that the change in cap was being made to keep the incidence of taxation similar to the pre-GST regime.