Luxury carmakers were one group who gave the Goods and Services Tax (GST) a thumbs up when it was rolled out on July 1. That’s because under the GST regime the total tax incidence on these vehicles came down to 43% from 50%. The benefits were to be passed on to customers by slashing prices but the positivity was short-lived. Last week the GST Council recommended increasing the maximum ceiling of cess on motor vehicles to 25% instead of the current 15%, raise the total tax to 53%. Understandably, luxury carmakers are scrambling to deal with the flip-flop in policy.

Fortune India spoke to Rahil Ansari, head, Audi India, Roland Folger, managing director and chief executive officer, Mercedes-Benz, and Vikram Pawah, president, BMW Group India about the implications of such a hike. They also touched upon topics such as vehicles using alternate fuel and sales patterns in India. Edited excerpts:

How is the hike in GST-related taxes going to impact the pricing of cars?
FOLGER: At the moment we don’t know because nothing has been fixed, so we are hesitant to make any price-related comments. What I can tell you is that if we do get up to the full 25% cess as projected, then it would certainly make our cars more expensive. I do believe that this one step forwards and two steps backwards as it doesn’t help business move at a steady pace, and will affect long-term planning. You can imagine the complex discussions we are now having with our colleagues in Germany about the Indian marketplace.
PAWAH: We strongly believe that long-term stability in tax reforms and regulations are of paramount importance to foster growth of any industry in the country. While we welcome the implementation of GST, immediate changes and fluctuations on motor vehicles cess will adversely affect the stability and growth of the automotive industry in India.
ANSARI: One month after implementing GST, rethinking a cess on luxury cars is not the right step and will give consumers and the business a negative sentiment. Our cars could end up being priced 4% higher than before GST, with the A3 and Q3 being priced at almost Rs 1.8 lakh more and the Q7 costing about Rs 7 lakh more. Then there’s the matter of us having to revisit our business plans, which were built on earlier announcements and this affects the dealers, sales force, and everyone in the supply chain.

In the near future how low on price will you go for an entry level car?
FOLGER: Our strategy is to drive value to our customers across the portfolio and not merely making products accessible. We do not see new products below the New Generation cars.
PAWAH: All our customers are different and we remain committed to meet their needs. Immediate change in repositioning our portfolio is not foreseen but the positive or negative effects of tax reforms go a long way in affecting consumer sentiment.
ANSARI: We have been the first in creating an entry-level luxury car segment in India–with the Q3 and A3–especially younger customers.

Roland Folger

GST rejig spooks plans of German luxury car makers