Luxury Cars Could Get Dearer As Lok Sabha Passes Bill For GST Cess Hike

The Lok Sabha has passed a bill to increase cess on luxury cars and SUVs from 15 per cent to 25 per cent. The bill will replace the ordinance passed by the GST council in September this year that increased GST on cars over four metres in length. In a statement, Arun Jaitley, the Union minister for finance, said that the hike in cess will help compensate for revenue loss incurred by by state governments due to the implementation of the Goods and Service Tax (GST) in July 2017.

Once the changes are implemented, the prices of luxury cars could go up as the total GST on them would go up from the current 48 per cent to 53 per cent. The total GST on SUVs are set to go up from 50 per cent to 53 per cent as well. So, expect SUVs to get dearer starting next year.

What is a luxury car?

According to the GST council, any car that measures over four metres in length and is powered by an engine that displaces over 1.5-litres is considered a luxury car. This makes Hyundai’s new Verna a luxury car rather than a mid-size car as it is powered by 1.6-litre petrol and diesel engines and measures over four metre in length at 4440mm. Other cars in this segment such as the Honda City and the Maruti Suzuki Ciaz remain to be mid-size cars as they are powered by smaller capacity engines. With the new taxation system, the Verna is likely to receive a price hike of upto Rs 25,000.

What is an SUV?

Any car over four metres in length and has a ground clearance of 170mm or above powered by petrol or diesel engines that displace more than 1500cc are considered as SUVs. Going by this definition, some variants of the Creta, which is classified as a compact SUV, will receive a price hike of about Rs 20,000 as it is powered by engines that are larger than 1.5-litre. However, lower variants of the Creta will remain unaffected as they are powered by a smaller 1.4-litre diesel engine.

The full scale of the impact will only become clear once the increased rates are implemented. Though we hope, apart from increasing the cess, the government also considers providing incentives on EVs to help them find favour among buyers