New Delhi: Mid and large sized cars, luxury vehicles, hybrids as well as SUVs are likely to cost more as the Cabinet on Wednesday cleared the issuing of Ordinance to raise the GST cess on them to a maximum of 25 per cent, from 15 per cent at present.
Car prices had dropped by up to Rs 3 lakh following the implementation of the Goods and Services Tax (GST) from July 1 and the ordinance is being seen as an attempt to rectify the anomaly where rates of certain common use items had gone up but luxury cars were costing less under the new regime.
Finance Minister Arun Jaitley said the ordinance, or an executive order, will amend the GST (Compensation to States) Act, 2017 to raise the maximum rate of cess.
However, he added, the actual cess on different classes of vehicles and as to when it will be implemented is to be decided by the GST Council.
Headed by Jaitley and comprising representatives of all states, the Council is to meet in Hyderabad on September 9.
The Ordinance, which is issued to enact a law or amend an existing legislation during times when Parliament is not in session, will now be sent to the President for promulgation.
The amendment would have to be approved by the Parliament within six months. The next session of Parliament is likely in November/December.
Jaitley said the objective of a taxation policy cannot be to make luxury items cheaper, and essentials costlier.
"If at all relief is to be given, it has to be given to a common man's item rather than a luxury item. So a person who can afford Rs 1 crore for a vehicle can also afford Rs 1.20 crore," he said. The highest pre-GST tax incidence on motor vehicles worked out to about 52-54.72 per cent, to which 2.5 per cent was added on account of Central Sales Tax, octroi etc.
Against this, post-GST the total tax incidence came to 43 per cent.