The Sweet Impact of GST on Mercedes-Benz Prices

Impact of GST
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The pan India roll out of Goods and Services Tax (GST) with effect from 1st of July aims at doing away with the multitude of indirect taxes that were levied by both States and Centre, with a simplified four tiered tax structure besides creating a single market. The new four tiered rates of 5%, 12%, 18%, and 28% is expected to boost the economy and create conditions for investors to invest in India. Like all other luxury goods, luxury cars too have been clubbed under the highest 28% tax slab with a maximum cess of 15% on cars with engines of more than 1500cc.

As a result of applying 28% GST rate and an additional cess (1% for petrol cars with engine less than 1200cc & 3% for diesel cars with engine less than 1500cc) has led to the sweetening of deal as far as the prices of luxury cars are concerned. This is due to the fact that in the pre GST era, the burden of indirect taxes on luxury brands such as new ones or used Mercedes and others, used to hover between 45-55%, which in the present scenario will be capped at the maximum of 43% (even lesser for cars with engines less than 1500cc).

The reduction in rates is expected to usher in a bonanza of sorts for the luxury car makers including for used Mercedes dealers in Delhi NCR, which till recently were reeling under the ban on diesel vehicles in the Delhi NCR since December 2015 for vehicles with engine of more than 2000cc. In fact, the luxury car industry is eyeing a double digit growth post GST as brands like Mercedes-Benz, Audi, BMW, and Jaguar are expected to get cheaper to the tune of 10%. Importantly, Mercedes-Benz has cut down on prices for its Indian made cars in the range of Rs. 1.4-7 lakh. These cars are CLA sedan, SUVs like GLA, GLC, GLE, and GLS, coupes like C-Class, E-Class, and S-Class, and Maybach S500.

There is further good news for Mercedes-Benz and other luxury brands, for the Supreme Court has lifted the ban on diesel vehicles with engine more than 2000cc. However, the top court has lifted the ban with a rider – the manufacturers or dealers have to deposit a 1% cess on the Ex-showroom prices of diesel vehicles in a nationalized bank. This lifting of ban comes as good news for used Mercedes cars or SUVs as well provided they are less than ten years old.

The appeal against the ban of Supreme Court was made by Mercedes-Benz and an association of automakers, for Mercedes-Benz was the hardest hit as the Delhi NCR accounted for a quarter of its total sales in India. The manufacturers on their part are looking to become BS 6 compliant by 2020 in-line with the Indian government’s directive.

Mercedes-Benz is eyeing at a double digit growth this year in contrast to a dip in sales last year thanks to demonetization and Supreme Court imposed ban on diesel vehicles of more than 2000cc. The Germany luxury brand with manufacturing facilities in India plans to roll out new models/variants/facelifts throughout 2017 such as Mercedes-Benz GLA facelift. The company had launched its E-Class long wheelbase variant, which is around 140mm longer than the current one. The long wheelbase variant is for providing better leg space to the owners who mostly travel at the rear, for the car is chauffeur-driven.

As the economy looks up and is expected to do even better thanks to GST and its successful implementation, luxury car brands like Mercedes-Benz though keeping their fingers crossed, are gung ho about hitting the road of higher sales.  

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