Business Today

Vehicles that escaped the budget's tax knife

The hike in taxes in union budget would raise prices anywhere between Rs 3,000 for the entry level hatchbacks like Maurti Alto to Rs 5 lakh for niche saloons and SUVs like the Mercedes-Benz S Class.

twitter-logo Chanchal Pal Chauhan        Last Updated: March 2, 2016  | 20:18 IST
The hike in taxes in union budget would raise prices anywhere between Rs 3,000 for the entry level hatchbacks like Maurti Alto to Rs 5 lakh for niche saloons and SUVs like the Mercedes-Benz S Class. (Photo: Reuters)

Chanchal Pal Chauhan, Senior Assistant Editor, Business Today
The Indian government has been hostile to the automotive industry that employs over 3 million and comprises close to 7 per cent of the GDP.

The hike in taxes in Monday's union budget would raise prices anywhere between Rs 3,000 for the entry level hatchbacks like Maurti Alto to Rs 5 lakh for niche saloons and SUVs like the Mercedes-Benz S Class. The German luxury carmaker has raised prices of its vehicles by up to Rs 5 lakh from March 15 in order to offset the impact of infrastructure cess and luxury tax proposed in the Union Budget 2016/17.

"Contrary to our expectation of some relief, the additional duties and taxes have adversely affected our pricing. Besides the steady rise of input costs against the backdrop of a weakening Indian currency, we have gone for price adjustments," Roland Folger, MD & CEO of Mercedes-Benz India said.

Prudently, though, the government has kept hybrids and electric vehicles out of the infrastructure cess and new luxury tax.
The few models that escaped the tax knife are hybrids such as the diesel variants of Maruti Ertiga and Ciaz sedan along with Toyota Camry Hybrid. And the Mahindra Reva E2O is the solitary electric car that lies out of the new tax.

The government has also maintained its tax rebates on electric and hybrid vehicles. The budget has extended tax sops like zero per cent basic custom duty and the 6 per cent excise duty on electric/hybrid/hydrogen cars beyond March 31 2016 deadline. This would help the potential buyers of new generation of the Toyota Prius Hybrid that would hit the Indian market soon.

Along with the hybrids, there is no increase in taxes on two wheelers, both domestically manufactured as well as the imports. These vehicles are also exempted in the Odd-Even drive of Delhi government and would not be prosecuted in the second leg beginning from April 1. That's some relief to Delhiites over continued subsidies on such vehicles under the Faster Adoption and Manufacturing of Hybrid and Electric vehicles (FAME) scheme with a Rs 200 crore grant extended to popularise these vehicles.

The Indian automotive industry claims that it is one of the mostly highly taxed and the total component accounting for up to 77 per cent of many new car prices.

Most carmakers have expressed disappointment at this budget on high expectation of their major demand though none of these came through. The much anticipated scrap page scheme meant to encourage scrapping of old cars and replacing them with new ones did not get any mention. There is no clarity either on the possibility of Goods and Services Tax (GST), which is still stuck in the parliamentary logjam.

Audi India head Joe King said that the budget proposals would negatively impact the automobile industry. "We are disappointed that the industry's demand on reducing excise duty has not been addressed. On the contrary, 1-4 per cent Infra cess on cars and SUVs will affect the price and consequently demand. Also, additional 1 per cent burden on purchase of cars above Rs 10 lakh goes against the industry that contributes so heavily to the manufacturing sector and overall economy."

The Indian automotive industry had achieved an estimated Rs 5,56,555 crore turnover, which is equivalent to 7.1 per cent of India's GDP and over 45 per cent of manufacturing GDP in the March 2015 ended fiscal year.

The auto industry forms 27 per cent of the industrial GDP with 7-8 per cent of total employment. Auto exports are also pegged at 7 per cent of India's total exports.


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