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Corporate Feb 7, 2013

Budget wishlist: Auto cos want lower excise on large cars

By Sindhu Bhattacharya

New Delhi: The Government wants more individuals and households brought under the tax net but car makers want to migrate to a lower duty regime.

Small cars, which means petrol cars (upto 1200 cc) and diesel ones (up to 1500 cc), which are less than 4 metres long are already taxed at lowest excise slab of 12%. It is the large, fuel guzzling SUVs and sedans which are taxed at two higher rates of 25% and 27%. This is where the industry has sought a concession.

Among the recommendations vehicle industry lobby group, Society of Indian Automobile Manufacturers (SIAM), has made for this year's Budget is reduction in excise duty on large cars and SUVs to 22%.

AP

SIAM is also seeking protection of the commercial vehicle segment from cheaper imports. AP

Is the Government going to listen to car makers' plea on SUVs and sedans this time, when it has been a constant on SIAM's Budget wishlist for many years?

The attitude of the law makers has been anti rich till now, which means they will impose more taxes on anything that can be classified as "luxury". When the two different excise rates for small cars and large ones were introduced some years ago, the Government justified the much higher excise on large cars by saying these were luxury items and people who can afford to buy a Rs 10 lakh car can certainly afford to pay more duty.

Now that the Government has reduced poor man's subsidies such as that on diesel pricing and on LPG cylinders, will it consider the industry's plea to tax the 'rich' man's cars less? Seems unlikely.

Car makers are asking for lower excise on large cars at a time when another and even more unpleasant levy may have been avoided: the dreaded tax on diesel vehicles. The industry feels that now that the Government has agreed to raise prices of diesel fuel in a calibrated manner, there is no room for any additional increase in diesel car levy. Here again, there is no commitment from the Government but the industry is hopeful never the less.

A committee headed by Kirit Parikh had earlier proposed Rs 50,000 per car per year new levy on large cars and SUVs which run on diesel. His logic? why should the 'rich' get subsidized diesel fuel where subsidy is intended for the poor, farmers etc.

The auto industry says government has misread quantity of subsidized diesel used by large cars and the actual usage by private cars and taxis together is not even 2% of the total diesel consumption. The industry has also said that increasing sale of diesel cars is actually good for the environment.

Besides the tricky issue of lower excise on large cars, SIAM is also seeking protection of the commercial vehicle segment from cheaper imports. The truck and bus makers are already facing a marked slowdown and cheap imports will only hurt companies like Tata Motors, Ashok Leyland more.

SIAM data shows production of medium and heavy commercial vehicles declined 19.13% year on year between in April-December 2012 and fell by 38.34% in December alone.

SIAM is seeking imposition of 40% customs duty on CV imports against only 10% now. SIAM has also asked for lower duty on CV chassis of 12% against 14% now.

Yet another plea is by makers of vehicles which are used to ferry rural passengers and in 'gramin seva' vikrams. They want excise on such vehicles to be lowered - as of now, these vehicles have to pay the same excise as large cars and SUVs at 25 and 27% slabs.

The vehicle makers have been struggling with low sales and poor offtake all through 2012, specially in the second half. The only way they can boost sales is by keeping taxes lower - most car makers have already increased vehicle prices on rising input costs. But the Finance Minister is already faced with an unmanageable fiscal.

by Sindhu Bhattacharya

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