The Union Cabinet has approved the promulgation of an Ordinance that would allow the GST Council to hike the maximum rate of compensation cess on large and luxury vehicles to 25 per cent from the current cap of 15 per cent.
Under the Goods and Services tax regime, all cars attract a basic GST of 28 per cent. Large cars with engine capacity greater than 1,500 cc and SUVs with length more than 4 metres & engine greater than 1,500 cc attracted additional cess of 15 per cent, following this several car makers had reduced prices of SUVs and large cars by Rs1.1 lakh to Rs 3.5 lakh, to pass on the benefit to customers after the GST rollout on 1 July, but now the cess has been increased by 10 per cent which will lead to increase in prices again.
Though, Finance Minister Arun Jaitley has made it clear that this was only an 'enabling Ordinance' and the decision to increase the cess would be left to the GST Council. The Council, chaired by Jaitley, will now meet on September 9 to take a call on the exact increase in the rate of the cess, as raising the cess will require an amendment to the Schedule of Section 8 of the GST (Compensation to a State) Act, 2017.
Earlier, a government notification cited the drop in tax incidence on the automobile industry before proposing an increase in the cess on large vehicles to 25% from the initially announced 15%. This compensation cess, applicable not just to cars but also tobacco and coal, will be used to form a corpus for compensating the states which experience tax revenue loss post-GST.