Mercedes-Benz has had enough of the Modi government’s tax tinkering

Neither good nor simple.
Neither good nor simple.
Image: Reuters/Danish Siddiqui
We may earn a commission from links on this page.

Mercedes-Benz, India’s top luxury carmaker, is unhappy with the Narendra Modi government’s frequent tinkering of the new goods and services tax (GST).

Since July, when the GST was launched, the government has rejigged the tax structure on several items, revised deadlines, and made policy U-turns. So, what was intended to simplify the old multi-layered tax system has only ended up confusing more people

Among those impacted are the country’s luxury carmakers, like Mercedes-Benz, on whom the government has imposed a sin tax, meant to discourage the use of certain items. A high rate of tax, along with an increased levy of cess charges, after the September GST rejig, has taken the total tax charges on certain cars up to 50%.

Auto makers, obviously, weren’t amused—and the head of Mercedes-Benz in India isn’t mincing his words.

“There has to be a radical change in the very approach to taxation in this country. I just don’t understand why there’s a sin tax on luxury cars,” Roland Folger, managing director and CEO of Mercedes-Benz India, told the Press Trust of India. “If (the) government can rationalise and bring in certainty to the taxation regime, if not bring it down, we can easily double our volumes and also add on to the number of jobs in just about two years.”

This isn’t the first time that Mercedes-Benz, the luxury brand of German automaker Daimler AG, has expressed its displeasure with the rejig in rate slabs. The management had earlier said that the frequent tweaking of taxation policy had made planning for India highly risky.

In an emailed response to Quartz, the company reiterated its September statement that the luxury car market in India has the potential to grow but is affected by unfair taxation:

Though (the) luxury car industry’s volume contribution is very low, our value-wise contribution is much higher and that has immense potential to grow even more in the future, had there been fair taxation. However, by continuous taxation of the segment, the overall revenue generation is going to be hurt, as the increase in price is going to hurt demand. It seems the contribution of luxury car industry to the total PV (passenger vehicle) market in India will remain constricted, though in the other developed economies, it is on a higher side and continues to rise gradually. With this increase in cess now, the prices are bound to leap back to the pre-GST regime, in some cases higher than the pre-GST regime, thus negating altogether the benefits of GST regime.

Other carmakers, such as Toyota Kirloskar Motor and Audi, are also unhappy with India’s policy flip-flops and hike in taxes.

And there’s more coming: A committee has recommended about 100 more changes to be made to the GST Act.

Even though the GST has been in the works for about 17 years, its launch in July revealed a number of nagging problems. In terms of tax rates, certain items of necessity had been placed in higher tax brackets, making them more expensive (these were eventually rolled back). The internet-based GST system has also battled technical glitches. Moreover, several business have raised concerns over the frequency of filing every month. So now that has been relaxed for small businesses with an annual turnover of Rs1.5 crore ($233,100).

Therefore, from changes on tax rates to procedures and the frequency of filing, the last six-months under the new tax regime has ended up being mainly about frequent changes and roll-backs. Evidently, not everybody is pleased with this constant fiddling.