The decision came about after total tax incidence on motor vehicles fell with the launch of GST.
It happened due to an 'anomaly' that crept in while GST rates were being decided; producers could effectively pocket unauthorized gains as a result.
Luxury vehicles to become more expensive
Why the raise?
Before the GST, the total tax incidence on motor vehicles was about 52-54.72%. Post-GST, it came down to 43%. A 25% cess rate was needed to make up the gap, but the ceiling on compensation cess was 15% earlier. Now it has been raised.
Which cars will be affected?
Vehicles falling under headings 8702 and 8703, to which the hike would apply, include mid-segment vehicles, SUVs, large cars and motor vehicles which can carry not less than 10 and not more than 13 people.
Hybrid vehicles with engine capacity over 1500cc and mid-segment hybrid cars below 1500cc are also included.
The GST Council will decide from when the hike will be implemented.
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But manufacturers say the move has many drawbacks
Luxury vehicle manufacturers including Toyota Kirloskar Motor, Mercedes-Benz, Audi and BMW have protested the decision. They say such a shift would weaken the spirit of liberal market dynamics, throw long-term plans into uncertainty, and ultimately affect expansion under the 'Make in India' initiative.