Manufacturers of SUVs and luxury cars may be forced to recast their expansion plans, and in some cases perhaps even their business operations in India, following the GST Council’s proposal to hike the cess on big cars to 25 per cent.
“We are highly disappointed with the decision,” noted Roland Folger, MD and CEO of Mercedes-Benz India. “This will... affect our future plans of expansion under (the) ‘Make in India’ initiative.”
Audi India head Rahil Ansari noted that the proposed increase in cess “will... adversely impact sales. We will be forced to re-evaluate our business plans in light of this development.”
Likewise, BMW Group India President Vikram Pawah said “fluctuations” on the cess would “adversely affect” the growth of the industry.
SUV makers, including Toyota, are learnt to be looking to curtail their expansion plans and even turn their Indian entities into holding operations, given the “policy uncertainty”. Others are looking at postponing or stopping the launch of fresh models.
Sources told BusinessLine that the entire tax structure of passenger cars could be rejigged again.
The development is the latest in a string of bad news for the segment. In December 2015, diesel-run luxury cars and SUVs were banned in Delhi and the National Capital Region, and although the Supreme Court overturned the ban in 2016, it resulted in huge losses for these auto-makers.
When the GST rates were unveiled, the cess on SUVs and luxury cars was fixed at 15 per cent. The total tax, at 43 per cent, was about 10 percentage points lower than the pre-GST rate. Car-makers lowered prices to pass on the benefit to customers, but they will now be forced to increase them again.
“Almost every year, there has been a policy change for the auto sector, which throws the entire investments in a limbo,” a spokesperson for a major car-maker told BusinessLine.
“Given the policy uncertainty, one wonders whether the Government is keen on keeping the industry alive,” another top official told BusinessLine.
“As an industry we would like to see long-drawn policies on... taxation matters,” said Rakesh Srivastava, Director-Sales and Marketing, Hyundai Motor India Ltd.
A spokesperson for another car-maker said the proposed hike would curtail the operations of auto manufacturers whose mainstay is SUVs and luxury cars. “Those who have made investments will get stuck,” he said.
Abdul Majeed, automotive lead analyst for PwC,said the government should be consistent with its policy. “It is a big negative for SUV makers,” he noted.
(With inputs from S Ronendra Singh in New Delhi and G Balachandar in Chennai.)