Automakers may shift the hiked cess onto buyers

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After the GST Council’s decision to raise the cess on the mid-size and large cars cars by 7%, many of the automakers (such as Mahindra and Mahindra, Toyota Kirloskar Motor India Ltd, Audi India, Mercedes-Benz India and Jaguar Land Rover) are planning to shift the increased cess onto buyers.

The companies said the constant changes in rates could lead to market instability and affect demand growth trends, expressing disappointment that the GST Council’s decision “totally overlooked” their contribution to the industry and the economy.

“Following the ordinance on the GST amendment, we note the increase in the cess from 2-7% on mid-, large-sized cars and SUVs. We see the prices of our products going up proportionately, which may nearly reflect the pre-GST scenario… However, we are ascertaining the real price impact on our models, given the GST cess hike,” said Shekar Viswanathan, vice-chairman and whole-time director, Toyota Kirloskar Motor. “These constant changes could lead to market instability and thus dampen the spirits of the industry across the entire value chain,” Viswanathan added. Mahindra and Mahindra MD Pawan Goenka said, “We are awaiting the exact definition of the categories. Whatever is the impact of the increased cess will reflect in the revised pricing from the effective date.” “We are grateful that the GST Council has very thoughtfully not raised the cess to the maximum level that had been enabled by the ordinance.”

By the increase in mid segment cars by 2%, large cars by 5% and SUVs by 7%, the prices have been bought to pre – GST levels. However, the GST rate on small cars still remains unchanged.

Almost all the automakers have expressed disappointment with the decision of increase in cess as it will adversely affect the stability and growth of the automotive industry in India.

Reacting to the hike in cess, Audi India Head Rahil Ansari said: “Even if the rumoured cess hike of 10% was not concluded, the prices will go up again, which is disappointing. We will need to study the impact of this hike on the buyer sentiment.” He further said the taxes on the auto industry are already very high and “we expected the unfulfilled potential of this segment to increase after the implementation of GST and rationalization of taxes”.

Expressing similar views, Mercedes-Benz India MD and CEO, Roland Folger said: “The decision to increase the cess yet again is very unfortunate and totally overlooks the contribution we make to the industry and the economy.” Though the luxury car industry’s volume contribution is very low, the value-wise share is much higher and that has immense potential to grow even more in future if there is “fair taxation”, he said. On the impact on prices of vehicles, he said: “With this increase in cess now, the prices are bound to leap back to the pre-GST regime, in some cases higher than the pre-GST regime, thus negating altogether the benefits of GST regime.”

Jaguar Land Rover India President and MD Rohit Suri said, “While the increase in cess will impact consumer demand, investment and job creation, we are glad that the government and the GST Council took note of our concerns and somewhat moderated the increase in cess.”

Sources –Livemint

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