GST effect: Hike in cess forces Mercedes-Benz and Audi to relook into their Indian buisness strategy

Mercedes Benz believes that this decision will also reverse the positive momentum that the industry wanted to achieve with the introduction of GST

By: | Updated: August 8, 2017 1:20 PM

Constant changes in policies and tax structure has always been a concern for the Indian auto-industry and in the latest development to increase the cess on luxury cars and SUVs by 10% has again disappointed many automakers. In its latest review meeting, GST Council has agreed to increase the cess of SUVs and other luxury cars to 25% as compared to current 15%. GST rate on large cars and SUVs is levied at 43% (including cess) which set to increase by 10% to 53% post being an amendment as a law by the Council. The cess on mid-size and large cars currently stands at 15%. The council will also cap the cess to 25% which means the taxes cannot be further increased on these vehicles. Major automakers have shown concern on increasing cess.The Indian arm of German automaker Mercedes-Benz have warned to put the future investment on hold in India. In addition, this proposal will hamper the premium maker’s expansion plans in India. In a statement given by Roland Folger, Managing Director & CEO of Mercedes-Benz India, said. "We are highly disappointed with the move as this will be a strong deterrent to the growth of luxury cars in the country. As the leading luxury car maker, this will also affect our future plans of expansion here. He also added "We feel deprived as the leading manufacturer of luxury cars in the country, who's been championing the make-in India drive.”

Mercedes Benz believes that this decision will also reverse the positive momentum that the industry wanted to achieve with the introduction of GST. “With this proposed hike,we expect the volumes of the luxury auto industry to decelerate, thus offsetting any growth in the potential revenue generation that could have come with the estimated volume growth”
Audi India too expressed disappointed, Rahil Ansari, Head, Audi India said “Luxury car industry in India, while small in volumes, still contributes over 10 percent in value. 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. However, the proposal of further increasing the Cess on the luxury car industry will dampen the spirits of not only the companies, dealers and customers but also workers and employees working in this industry.”
Audi India will also be forced to re-evaluate its business strategy in India as this proposed increase in cess will affect its sales and overall business in India. Audi India has also requested the government to reconsider this proposal.

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