NEW DELHI - India's cabinet on Wednesday approved raising the maximum levy on luxury cars and sports utility vehicles (SUVs), drawing criticism from several car makers.
Rahil Ansari, India head of German luxury car maker Audi, said the move could lead to a double-digit dip in sales and force the company to rethink its plans for the country.
The levy is part of a nationwide goods and services tax (GST) launched last month to replace a multitude of provincial and national levies in the biggest tax reform in 70 years.
Under the new sales tax, vehicles are taxed at 18 percent or 28 percent with an additional levy of 15 percent on some types of cars.
The cabinet passed an executive order, or ordinance, to raise the maximum levy to 25 percent from 15 percent, Finance Minister Arun Jaitley said.
"The ordinance is only an enabling law. This does not mean the cess (levy) will automatically increase," Jaitley said, adding that a panel of federal and state finance chiefs that form the GST council will decide on the timing and amount of increase.
Raising the levy will make luxury cars and SUVs more expensive and could hurt sales of companies like Mercedes-Benz, BMW, Volvo and Jaguar Land Rover, owned by Tata Motors.
Audi's Ansari said the move will be "detrimental", and force the company to raise prices and redraw its India plans.
"This is bound to adversely impact sales by possibly a double-digit reduction and will consequently reduce revenues for the company, dealers and perhaps also tax revenues for the government," Ansari said, adding that any increase should be postponed by 6 to 12 months.
Rohit Suri, managing director for Jaguar Land Rover in India said that since the implementation of GST, demand for luxury cars has been on the rise and a continuation of this would create jobs and enable more investments in local manufacturing.
"We earnestly hope the government and GST council will give due consideration to this matter and desist from raising the cess," Suri said.
Sales of auto makers such as Toyota Motor, Mahindra & Mahindra and Maruti Suzuki that sell SUVs in India could also be affected.