Auto cess hike: Merc says it may affect expansion plans

Luxury car maker Mercedes-Benz India today warned of putting its future investment on hold, citing the proposed amendment in the GST law that seeks to hike the cess on high-end vehicles to 25 per cent from the existing 15 per cent.
"We are highly disappointed with the move as this will be a strong deterrent to growth of luxury cars in the country. As the leading luxury car maker, this will also affect our future plans of expansion here," Roland Folger, managing director & chief executive of Mercedes-Benz India, said.
"We feel deprived as the leading manufacturer of luxury cars in the country, who's been championing the make-in India drive. This decision will also reverse the positive momentum that the industry wanted to achieve with the introduction of GST, he said in a statement.

"With this proposed hike, we expect the volumes of the luxury auto industry to decelerate, thus offsetting any growth in the potential revenue generation that could have come with the estimated volume growth," Folger said.
The proposed move also underlines the need for long-term roadmap for the industry which has been at the receiving end of arbitrary policies, he said.
"The constant shift in policy makes our long-term planning for the market highly risky, and we think this would only have an adverse impact on the country's financial ratings," he said, adding by making better technologies more expensive, government is causing more damage to environment.

Noting that one of the original benefits expected from GST was tax rationalisation, Folger said luxury cars and SUVs are one of the segments that long required tax rationalisation, as this segment has been highly taxed.

Stating that one month is too short a period to consider upward revision in the rates, he said the government should have watched the market performance for at least six months.
"The proposal of increase in cess clubbed with the increased road tax rates will take the effective consumer price much above the pre GST scenario," Folger said.
Last Saturday's GST Council meeting decided to massively increase the cess on the auto sector.

The proposal is only an enabling provision and needs legislative approvals to actually make the hike as the GST law will have to be amended to do so.
Auto players including Mercedes had lowered their prices by a few lakh rupees after the GST brought down the effective taxes on high-end vehicles.