New GST Rates To Affect Future Expansion Plans In India: Mercedes-Benz

Expressing his disappointment over the new amendment in the goods and services tax (GST) law, Roland Folger, MD & CEO, Mercedes-Benz India said, “We believe this will be a strong deterrent to the growth of luxury cars in this country.”

The GST Council, on Monday (7 August), has hiked cess rates on sports utility vehicles (SUVs), mid-sized, large and luxury cars to 25 per cent from previous 15 per cent.

Folger also mentioned, in an official statement, “This will also affect our future plans of expansion under 'Make in India' initiative, which aims at making and selling world-class products in India, with the latest technology for end consumers. We feel deprived as the leading manufacturer of luxury cars in India, who has been championing ‘Make in India’.”

“This decision will also reverse the positive momentum that the industry wanted to achieve with the introduction of GST. With this hike in cess, we expect the volumes of the luxury industry to decelerate, thus offsetting any growth in the potential revenue generation that could have come with the estimated volume growth."

However, Shrikant Akolkar (Research Analyst- Automobiles, Angel Broking) said, “The likely hike in the cess rate from current 15 per cent to 25 per cent is not expected to see a materially negative impact on the demand for the premium automobiles. The underlying demand remains healthy which is the driving force for the automobile sector. We believe that companies will be able to pass on the cess hikes on luxury vehicles/utility vehicles to customers by price revision.”

Abhishek Jain, Tax Partner, EY, echoed the same by saying “The Government realized that the 28 per cent GST and 15 per cent cess on luxury cars was lower than the effective indirect tax rate pre-GST; which the Government is trying to correct by proposing to increase the cess from 15 per cent to 25 per cent. However; it would be a hit to the auto-industry which had already started passing on the benefits of reduced tax to the customers.”

"This decision once again reiterates the need for a long-term roadmap for the luxury car industry, which has been at the receiving end of arbitrary policies. The constant shift in policy makes our long-term planning for the market highly risky, and we think this would only have an adverse impact on the country's financial ratings. By making better technology more expensive, the government is causing more damage to the environment and slowing down the overall growth pace of the country's economic growth, which it is striving to achieve," added Folger.

Folger continued, "One of the original benefits expected out of GST was rationalization of tax rates. Luxury cars and SUVs are one of the segments that long required tax rationalization, as this segment remains highly taxed. Further, in the pre-GST regime, the taxes to the final customer were varying widely from state to state depending on the VAT applicable in respective states. Also, one month is too short a period to consider an upward revision in rates. The market performance should have been watched for at least 6 months, before it was relooked. The current proposal of increase in cess clubbed with the increased road tax rates, will take the effective consumer price much above the pre GST scenario level."