Cars to be taxed at highest 28 percent slab under GST

The Goods & Services Tax (GST) Council has decided on a four-tier GST tax structure of 5, 12, 18 and 28 percent, with lower rates for essential items and the highest for luxury and de-merits goods including cars. As per the structure luxury cars will fall under the peak rate along with attracting an additional cess over and above the 28 percent set by the council. The highest rate for luxury items currently taxed is at 30 to 31 percent (excise duty plus VAT).

However, the government is yet to define what constitutes a luxury car. The additional cess collected is expected to be used to compensate states for any loss of revenue for the first five years of implementation of the GST. Furthermore, the cess would also be lapsable after a five year period.

"We are currently seeking more clarity on the impact of the GST rate on the prices of luxury vehicles. Our internal team is in the process of assessing the same. The basis of classification of luxury cars is also not known as of yet. We are seeking further clarity on that as well," a Mercedes Benz India spokesperson said.

The Society of Indian Automobile Manufacturers (SIAM) had recently recommended a standard tax rate for small cars and multi-utility vehicles and an additional 8 percent for other cars. Moreover, it also suggested that for electric, hybrid and other alternative fuel vehicles, the rate should be at least 8 percent less than the standard rate.

However, as things stand it looks like there will be one uniform rate for all cars with the cess being the only differentiator.

The Indian auto industry has four different slabs of excise duty based on dimensions and engine capacity ranging from 12.5 percent for small cars, CVs, two- and three-wheelers to 30 percent for luxury cars and SUVs. In addition, the government imposed an infrastructure cess ranging from 1-4 percent.