Good news for small car buyers, bad news for mid and SUV segment cars as cess rates change

Small cars and hybrid vehicles gets no hike in additional cess while mid-size cars and SUVs will see a price hike by 5% and 7% respectively.

By: | Updated: September 9, 2017 8:57 PM

GST Council headed by Finance Minister Arun Jaitley has set the quantum on increase in cess on cars and SUVs that was approved by the President earlier this month. While the small petrol and diesel cars will not see any hike in cess, the mid-segment cars are set to be costlier as the GST council has added a 2% additional cess in this segment. Large size cars which are more than sub-4 meter in length gets an additional 5% cess and SUVs gets costlier by 7%.  With this hike the prices of the cars and SUVs are set to go back to pre-GST era. The new rates of cess comes as a relief to the auto-industry as initially it was expected the prices of the car to go up by about 10-15% post the hike in cess. R.C.Bhargava, Chairman of Maruti Suzuki believes that there will not be any major change in demand for mid-segment cars with the additional cess kicking in. He further added that the industry never expected GST to bring down the prices of the cars.

Abhay Firodia, President, Society of Indian Automobile Manufacturers (SIAM) said “This is a moderate move by the government and good that it is not implemented fully. There are now too many categories, with the rise in cess the old level of taxations are reappearing and the whole aspect of GST is disappearing here. Expect festive discounts to go down.” Even the buying sentiments of the customers during the festive season will be affected.

However, companies might hold back the prices as much as they can to make the most of the festive season sales. “We expect the prices of mid-size cars to go up by Rs 60,000-70,000” added Rajan Wadhera, President Mahindra & Mahindra. He further added that “the hike in SUVs is substantial and will affect demand for SUVs dropping by about 15-20%.”

Premium automaker Mercedes-Benz India believes that luxury car segment in India has a good potential to grow which will be restricted due to the cess hike. Mercedes-Benz India added, "the price hike is very unfortunate". Rahil Ansari, Head, Audi India in a statement said, "the taxes on this industry were already very high and we expected the unfulfilled potential of this segment to increase after the implementation of GST and rationalization of taxes. 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."

Hyundai India was expecting a growth of about 13-15% in domestic sales this festive season and expects this growth to slightly slowdown as the the customers will have to pay the additional cess.

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