Impact of GST: Auto companies Make in India initiatives to be hit

Luxury car manufacturers hit out at the move to hike cess on SUVs and large cars to 25%. The manufacturers mentioned that this was against the spirit of the market dynamics and would have a huge impact on the expansion plans under the ‘Make in India’ initiative by the Government.

Car manufacturer companies that include BMW, Audi, Mercedes-Benz and Toyota Kirloskar were unanimous on the decision that an increase in the cess of SUVs as well as luxury cars would dampen the spirit across the industry and have an impact on the entire value chain. The same luxury cars and SUVs had become cheaper after the rollout of GST. The companies mentioned that a constant change in policy makes it difficult to plan for long term in the highly risky market. This would only have an adverse impact on the financial ratings of the country.

As per the current GST rates, SUVs and luxury cars attract a tax rate of 28% with an additional cess of 15%.

Vice Chairman and Whole Time Director of Toyota Kirloskar, Shekar Vishwanathan said that with such a move, the government is giving a message that it is not looking at the auto sector to spur the economic growth. He also said that increasing cess of luxury cars and SUVs will benefit some companies while putting the others at a disadvantage.

Mercedes Benz MD and CEO, Roland Folger said that the company was extremely disappointed with this move and it would be a strong deterrent to the growth of luxury cars and SUVs in the country. He also mentioned that this move will have an impact on the future plans of expansion under ‘Make in India’. Audi India Head, Rahil Ansari expressed similar sentiments, he said that the company will be forced to reevaluate the business plans due to this move. He also requested for a reconsideration of the proposal. This proposed increase in cess will have an adverse impact on the sales. This proposal will dampen the spirit of the customers, dealers, companies, workers as well as the employees working in the industry. The company was expecting that the rollout of GST will help them reach the unfulfilled potential with the rationalization of taxes.

On Monday, the finance ministry said that the GST council had approved a proposal for a hike in cess on SUVs and large cars to 25% from 15% now. The decision on when to raise the actual cess leviable will be taken in due course. These companies were looking to generate additional sales with the implementation of GST and had reduced the prices of SUVs and luxury cars by a significant amount. The implementation of 25% cess will bring down the spirits across the sector and every company will have to relook at their strategy for the future. The increase in cess will reverse the positive momentum generated with GST. The volumes are estimated to decelerate, thus offsetting any growth in the potential revenue generation, which would have been possible with the estimated growth in volume.