Government ordinance increases cess on luxury cars to 25%, total tax reaches 53%

With government’s approval, cess on luxury and sports cars has been increased to 25% from the existing 15%. The cess comes on top of 28% GST, which means that the high-end cars will attract a total tax of 53% post the implementation of this ordinance.

After this ordinance, the section 8 of GST schedule and will increase the revenue to the state government in form of cess. After GST, states have been getting lesser tax revenue as compared to the previous tax structure. Before implementation of GST, there were a number of taxes charged by the state government, all of them have been scrapped post-GST implementation to support the one tax system.

GST Council, headed by union finance minister Arun Jaitley had recommended amendments to the GST structure and to revise the cess on high-end vehicles to 25 percent. The approved ordinance will now be discussed in next meeting of GST Council and the outcome of that will pave a way to the implementation of the new rate. The vehicles coming in this range include the ones with more than 4meters in length and engine capacity of over 1500cc. According to analysts, the GST Council might keep the total tax to below 50% to ensure benefits to the customers as well.

The decision to increase cess on luxury vehicles was taken after a significant drop in prices for a number of vehicles. For example, Toyota Fortuner and Innova saw a drop of 2.17 lakh and 1 lakh in prices respectively. At the same time, many other vehicles saw the prices dropping by 8 – 10%. Following the same, GST Council had suggested increasing cess to increase the revenue of the states.