Cabinet hikes auto cess; move to impact Mahindra and Mahindra, Toyota, Skoda and others

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Published: August 31, 2017 5:49:23 AM

Addressing the media after the Cabinet meeting, finance minister Arun Jaitley said: “The object of the government policy can’t be such that luxury items become cheaper.”

Arun Jaitley, Cabinet, GST, Goods and Service Tax, Mahindra and Mahindra, Toyota, Skoda, luxury itemsAddressing the media after the Cabinet meeting, finance minister Arun Jaitley said: “The object of the government policy can’t be such that luxury items become cheaper.” Representative Image

The Cabinet on Wednesday approved an ordinance to amend the Goods and Services Tax (GST) (Compensation to States) Act, 2017, to pave the way for increasing the cess on SUVs and luxury cars, a move that could impact Mahindra & Mahindra, Toyota Kirloskar Motor, Mercedes Benz and Skoda, among others, as they will have to either assume an additional tax burden or suffer a fall in sales volumes. The proposed ordinance is to enable the GST Council to raise the ceiling of the cess leviable on “motor vehicles falling under headings 8702 and 8703 including SUVs, to 25% from the present 15%”, but it is not clear how much of the space for the tax hike to be released by the change would be utilised by the Council.

Behind the Cabinet’s decision is a policy intent to correct an unintended fall from 53% to 43% in the tax liability on certain mid-size, luxury and sports utility vehicles (all of over 4 m in length and above Rs 1,500 cc in engine capacity) after the GST implementation. Addressing the media after the Cabinet meeting, finance minister Arun Jaitley said: “The object of the government policy can’t be such that luxury items become cheaper.” Post-GST, prices of the vehicles in the above-mentioned categories were reduced by automakers in the range of  Rs 1.1-3 lakh. Toyota’s Fortuner and Innova, and JLR brands were among that saw price cuts.  The cesses in the GST regime are applicable on a clutch of “demerit goods” including tobacco, pan masala, aerated drinks and luxury cars, all of which also attract the highest GST rate of 28%. These imposts are meant to compensate states for any revenue loss due to GST adoption.

If the cesses are hiked to 25%, it will yield the Centre and states a revenue windfall, much of the same magnitude as the Rs 5,000 crore extra they would rake in annually from the increase in specific (non-ad valorem) cess on cigarettes announced on July 17. “We earnestly hope that the government and the GST Council will give due consideration to this matter and desist from raising the cess and putting a dampener on the positive momentum in demand that the industry had started to witness since July 1,” said Rohit Suri, president and managing director, Jaguar Land Rover India. “What is critical to the industry is when, how much and on what criteria will the cess be increased,” said Pawan Goenka, managing director, M&M.

The Cabinet also approved a scheme to exclude the families of relatively senior OBC officials at PSUs, banks and insurance firms from reservation benefits. This is in line with a creamy layer policy already implemented for government staff. “In PSUs, all executive level posts such as board-level executives and managerial level posts would be treated as equivalent to Group A posts in government and will be considered ‘creamy layer’,” the government said in a statement. For clerks and peons in PSBs, FIs and insurance companies, the income test as revised from time to time will be applicable for the proposed exclusion. Currently, those earning above Rs 8 lakh annually, are considered to be part of the “creamy layer”.

Separately, the government also approved 65 of the 99 recommendations by an expert panel to enhance the combat potential of armed forces and rebalance defence expenditure. “It will lead to redeployment of 57,000 officers, junior commissioned officers and other ranks, it is a far-reaching change,” Jaitley, who also holds the defence portfolio, said. The move would free up 10,000-12,000 acres of defence land currently being used as defence farms across country and lead to the closure of these farms. Besides, major other jobs undertaken by defence personnel will be integrated across all defence services.

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