Lok Sabha passes bill to hike GST cess on luxury cars to 25%

The Lok Sabha on Wednesday approved a bill to raise the maximum cess levied on luxury cars from 15 per cent to 25 per cent, following the GST Council's recommendation at its 5 August meeting to increase the maximum rate at which compensation cess could be collected on certain automobiles.

Once passed by both houses of Parliament, the bill, which seeks to replace the ordinance issued in September following the GST Council's recommendation.

The ordinance had provided for a hike in upper limit of cess on mid-sized, hybrid variants and luxury cars to 25 per cent.

Post the implementation of GST cess hike, the total tax incidence on luxury cars will stand at 53 per cent.

The move is aimed at enhancing central funds to compensate states for revenue loss due to the implementation of the goods and services tax (GST).

The funds collected following the GST cess hike on luxury cars will be used to compensate states for revenue loss after GST implementation, finance minister Arun Jaitley said in Parliament amidst din during a short discussion

As the bill was being discussed, opposition members stormed the well of the House, demanding dismissal of union minister Ananth Kumar Hegde for his controversial remarks on the Constitution and secularism.

Earlier participating in the discussion, Biju Janata Dal member Bhartruhari Mahtab said the move is aimed at eliminating an anomaly that led to a drop in prices of luxury vehicles after the implementation of GST while the prices of smaller cars did not change.

''The prices of luxury vehicles like Mercedes Benz came down by Rs3 lakh. After this bill is passed, the benefit will accrue to respective states and the central kitty will also see an increase,'' he said.

Mahtab said the impact of GST rollout on the exchequer will be known after January once the implementation of the new indirect tax regime is streamlined.

''The problem today is that the mammoth task of replacing the country's entire indirect tax system with a new one is testing the limits of policymakers' real-time responsiveness, resilience of infrastructure and taxpayers' ability to adapt to a more disciplined compliance regime. The question of course remains whether the tax reform delivers the promised economic benefits or gets derailed by transition glitches,'' he said.

AIADMK's TG Venkatesh Babu said going by the revenue accrued in the first month of the new tax regime, the state GST has increased Tamil Nadu's revenue by 14 per cent compared to that earned through value-added tax (VAT) in the past.

He said the central government should have an incentive mechanism to support Tamil Nadu for performing exceedingly well as a big manufacturing and consumption state.

''The Tamil Nadu government fears that there will be delay in receiving money from the other states under the GST regime,'' Babu said.

Janata Dal (United) member Kaushalendra Kumar and Shiromani Akali Dal's Prem Singh Chandumajra demanded special packages for Bihar and Punjab respectively.

Nationalist Congress Party (NCP) member Supriya Sule called for immediate removal of sanitary napkins and agricultural products from the purview of the new tax regime and stressed on the need to improve the GST software.