Cess on the luxury cars will be extended beyond 2022: GST council

On Oct 6, 2020

The GST council of India has approved to extend the surcharge beyond five years. It will extend a surcharge on taxes on luxury goods including cars and tobacco products beyond 2022 as to help states repay loans raised to meet revenue shortfalls in the current fiscal year, the finance minister said on Monday. The surcharge was supposed to expire in 2022 on luxury goods which are now extended.

Nirmala Sitharaman after a virtual meeting with state finance ministers said, “The GST council has approved to extend the cess (surcharge) beyond five years.”

The current surcharge varies from 12% to 200%, under the national goods and services tax (GST) introduced in 2017. When GST was implemented, the luxury vehicles in India attracted a base rate of 28% with 15% cess. It was further increased on large cars taking GST to 48%, and in some cases up to 50%. This tax structure made luxury cars more expensive in India, compared to their prices in other countries

However, the tax receipts of the federal and state governments fell about 40% year-on-year in the five months to August due to the economic fallout from the coronavirus pandemic. Due to which the Finance Ministry is taking steps to compensate for this fallout. The Indian economy is forecasted to contract by about 10% in the current financial year ending in March 2021, private economists said, against the initial government estimates of about 6% growth.

The federal government has asked the states to borrow up to 1.1 trillion rupees ($15.05 billion) from the market in the current fiscal year ending in March 2021, as the surcharge collections would not be sufficient to compensate them.

Many opposition-ruled states have opposed the move, saying it is up to the federal government to meet the shortfall by borrowing itself. Thomas Issac, finance minister of the southern Indian state of Kerala said, “Ten states demand that full compensation should be paid to the states during the current year as per clauses in the law and center should borrow.” Maharashtra is also not happy with the options provided by the GST council, Finance Ministry.