Hike in cess could prick growth of automotive segment

One cannot say whether the increase in taxes are hampering the growth of the Indian auto industry or the taxes are being increased in order to hamper the growth of the Indian auto industry. The Finance Ministers of various states have charged the auto sector with increased tax revenues, with effect from 1st April 2012. The car makers fear that the hike of 2 percent on the excise duty announced in the Union Budget 2012-13 juxtaposed with these additional taxes is sure to nip the growing Indian auto industry in the bud. It seems like the state governments of Madhya Pradesh, Maharashtra, Kerala and West Bengal are not bothered by the probable decline of their car markets. The hiked road and other taxes in addition to the 2 percent hike in the excise duty are expected to further soup up the on-road prices of the cars in these states which will ultimately result in the abatement of the demand of cars.

Post the excise duty hike, the on-road prices of small cars has increased around Rs. 3000-5000, with effect from 1st April. The customs duty has suffered a hike of 15 percent so the cost of the fully imported luxury cars and SUVs has gone up by Rs. 5-10 lakh. These two segments in conjunction form almost one-third of the Indian car market. The Maharashtra state government has increased the road tax by 2% and 4% respectively for all petrol and diesel cars over Rs. 5 lakh. The CNG vehicles in the Maharashtra state have seen a 2% decline in the road tax across all price range. The Kerala government has rendered different percentage of hike in different price segments, like the Rs. 5-10 lakh cars have seen a 2% hike in road tax, the Rs. 10-15 lakh cars are facing a hike of 4% and lastly the cars with price tag Rs. 15 lakh and above have witnessed a steep hike of 7% in road tax.

The government of the state of West Bengal has hiked up the VAT by 1% to 14.5% from the previous figure of 13.5%, in addition to this the government has also introduced a 1% entry tax on all cars. The madhya Pradesh government on the other hand has doubled the entry tax on car prices to 2%. According to Sandeep Singh, the Deputy Managing Director - Marketing of Toyota Kirloskar Motors, the demand in these major states is surely going to stumble on the account of the increased tax rates during and post the union budget. The road and entry tax are levied on the ex-showroom prices so the customers will end up paying a lot, he added. Over the last 10 years the passenger car sector grew with a compound annual growth rate of 16.6%; the current times have however been a bit difficult for the sector as the growth rate has hit the rock bottom with growth rate as low as 0-1%.