Cabinet approves raising GST cess on luxury cars to 25%

New Delhi, Aug 30 (IANS) The Union Cabinet on Wednesday approved an ordinance to raise the ceiling on GST cess for luxury vehicles and SUVs from the current 15 per cent to 25 per cent. This can lead to a hike in prices of high-end cars.

Briefing reporters after the Cabinet meeting, Finance Minister Arun Jaitley said it was decided to recommend to President Ram Nath Kovind to promulgate an ordinance in this regard.

The decision on raising the cess on luxury cars would be taken by the GST Council, he said.

Explaining the rationale, Jaitley said that pursuant to the implementation of Goods and Services Tax (GST), the price of luxury vehicles had substantially come down.

"Objective of any taxation policy can't be that luxury goods becomes cheaper. Relief has to be given to a common man's item and not a luxury item," he said.

Currently, the luxury cars and sports-utility vehicles (SUVs) are taxed at 28 per cent under GST along with a cess of 15 per cent.

"The ordinance is only an enabling law so that cap for those luxury vehicles can be increased to 25 per cent.

"This doesn't mean that cess will automatically increase. The GST Council, whenever it meets, is entitled to take a decision if it wishes to increase the cess within the cap," he said.

In relation to certain products like cigarettes, tobacco and luxury vehicles, a cess was permitted under the GST, which goes into a compensation pool, from which any state that loses revenue in first five years would be compensated.

Replying to a question whether the GST rates would come down, Jaitley said it was a new experiment and one would have to see the pattern for a considerable time.

"The GST Council acts on expert advice. Optimum level of taxation has to be kept in mind. No comment on rates. This is an experiment. It has started off well. Collections are reasonably buoyant. We will see how it progresses. The objective was that those who are not paying taxes, start paying them," he said.

The ordinance was needed to amend the Schedule to the GST (Compensation to State) Act 2017, that currently specifies 15 per cent as the maximum cess rate for luxury vehicles and SUVs.