GST cess may increase from 15% to 25%

The GST Council, the apex tax rate setting body under the Goods and Services Tax regime, had on August 5 approved raising cess on SUVs, mid-sized, large and luxury cars that had become cheaper post GST rollout on July 1.

But, for raising the cess requires an amendment to the Schedule of section 8 of the GST (Compensation to a State) Act, 2017.

“The Cabinet will in next few days consider amending that through the issue of an ordinance,” an official said. Views of ministries like road, transport and highways and heavy industries will be taken before hiking of the cess, the official added.

An ordinance is issued when Parliament is not in session to approve a legislation or change in a legislation. The ordinance has to be replaced with a proper legislation with the approval of Parliament within six months of its issuance.

Under GST, a cess was levied on demerit goods like cars, tobacco, and coal, to create a corpus for compensating states for any loss of revenue from their taxes like VAT being unified with central levies like excise duty and service tax in the GST.

The highest pre-GST tax incidence on motor vehicles worked out to about 52-54.72 percent, to which 2.5 percent was added on account of Central Sales Tax, octroi etc.

Against this, post-GST the total tax incidence came to 43 percent. So, to take the tax incidence to pre-GST level, the highest compensation cess rate required is 25 percent.

Prices of most SUVs were cut between Rs 1.1 lakh and Rs 3 lakh following implementation of GST, which subsumed over a dozen central and state levies like excise duty, service tax, and VAT from July 1.

(Agencies)

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