Luxury Sedans, SUVs Hit Speed-Breaker Harder With FM's New Cess
Be prepared to shell out more for cars. Finance minister Arun Jaitley introduced an `infrastructure cess' in the Budget which will see a spike in car prices across categories--right from the entry-level Maruti `Alto' that gets dearer by Rs 3,000 to the Toyota `Fortuner' SUV which adds at least Rs 76,000, and running up to Rs 5.6 lakh on the Mercedes Benz luxury saloon `S Class'.
Jaitley introduced the cess, which is similar to an excise duty , for all kinds of vehicles--small cars, sedans, SUVs and luxury vehicles. The cess charge ranges from 1%, 2.5% and 4%, depending on vehicle type, and surprisingly has been mandated even for compact vehicles and those running on cleaner and efficient fuels such as CNG and LPG.
Jaitley also sought to bring in transparency when it comes to buying cars costing over Rs 10 lakh, but here too the move appears to be an irritant for buyers. “I also propose to collect tax at source at the rate of 1% on purchase of luxury cars exceeding value of Rs 10 lakh... For compliant tax payers with resources, this levy not only advances collection of tax when the expenditure is incurred, but provides data to the tax authorities to identify the persons who incur such expenditure, but may be missing from the tax base,“ the FM announced in his Budget speech.
The auto industry said that the FM's proposals will dampen buyer sentiments. “The cess is something that I cannot understand. The industry is struggling today , and there is hardly any growth. It has come at a wrong time,“ RC Bhargava, chairman of Maruti Suzuki, said. “Why are the cars being made culprits here, even though an IIT Kanpur study has shown that they have a negligible impact on the environment. This is going to hurt the industry , and will impact growth and affect job creation,“ Bhargava added.
The industry was expecting an incentive from the government for the phaseout of older vehicles and tax incentives for the purchase of newer, cleaner vehicles. The price increments could be telling on an industry which is already dol ing out discounts and freebies to get buyers as consumer sentiment is still low.
A Hyundai `i20' hatchback will see a hike of around Rs 6,000-18,000 while the company's popular `Creta' SUV may get expensive by Rs 35,000 55,000. Honda's `City' sedan could see prices go up by between Rs 30,000 and Rs 50,000 while Mahindra's `Scorpio' SUV could be dearer by Rs 40,000-50,000. “This will be a dampener and will effect demand. The reduction in demand will lead to growth challenges,“ Rakesh Srivastava, senior vice-president at Hyundai India, said.
Companies also fear that the Budget may prompt state governments to consider duty hikes. “If road tax and other on-road slabs also go up, it will hike prices of vehicles even further, pinching the demand,“ said Sumit Sawhney , MD of Renault India. “The industry has to spend enormous monies on meeting the accelerated regulations on safety and emission and any extra tax is a significant burden,“ said Vikram Kirloskar, vice-chairman of Toyota Kirloskar.
Luxury carmakers are even more worried, considering that price hikes on their models will be steep. “Taxing luxury cars will be a deterrent for the growth of the industry,“ Roland Folger, MD of Mercedes Benz India, said.