Budget 2012: New cars to cost more as government raises taxes by 2 per cent

Friday 16 March 2012, 17:43 PM by

The Union Budget announced by Finance Minister Pranab Mukherjee came as a relief to the Indian auto industry, which had been worried about the proposed diesel tax. However, the government has decided to not levy any tax specifically on diesel cars, though it has raised basic excise duty by 2 per cent to 12 per cent in Budget 2012. The duty on cars measuring more than 4 metres, on the other hand, has been raised from 22 per cent to 24 per cent. Buyers will suffer from this increase in taxes as car makers are set to offset the additional cost to the consumers.

In the new budget, the government has announced that large cars will be subjected to up to 27 per cent duty, thereby hiking the taxes on Multi Utility Vehicles (MUVs) and Sports Utility Vehicles (SUVs). The custom duty on auto components has been increased by the Government of India. Moreover, a 27 per cent ad valorem rate would also be levied on cars in the country, instead of the 22 per cent that they attracted earlier.

The standard excise duty, which was 10 per cent till now, has also been increased to 12 per cent in a bid to generate revenues of Rs. 18,650 crores. Imported Cars costing over $40,000 will now be subjected to 75 per cent import duty, which was 60 per cent prior to the announcement of Budget 2012. However, LNG will not attract any custom duty in 2012-13.

Till now, there were concerns whether the 2012 Budget would bode well for the auto industry or not. This led to a 13.11 per cent growth in car sales in February 2012, when a total of 2,11,402 vehicles were sold in India. However, things are expected to slow down in the market as all car makers will be forced to raise prices.

Maruti Suzuki, M&M and Honda Siel are expected to raise car prices in the tune of Rs. 70,000. Reacting upon the 2 per cent increase in excise duty, Maruti said that it will transfer the extra cost to the customer and release a statement about the new prices soon. Mahindra & Mahindra (M&M) conceded that it was pleased that no additional tax has been announced for diesel powered passenger cars.

Pawan Goenka, President (Automotive and Farm Equipment Sector), Mahindra & Mahindra said that the industry was not appreciative of the budget, though it had anticipated the same. He commented, “The input costs have also gone up in recent times. Considering this, we will raise the prices of our vehicles by 2%-3%, translating into an increase of Rs. 6,000 to Rs. 30,000”.

General Motors India's response was similar to that of Maruti's; the prices of its car are expected to go up by Rs. 5,000 to 40,000. Toyota said that the extra costs will result in a slump in car sales in the domestic market, while bike manufacturer TVS said that it will release the revised price list on 17th March 2012.

Before Budget 2012 was announced, the stocks of auto companies tumbled by more than 2 per cent on the BSE index as investors had been worried by rise in taxes. However, the announcement of the budget ushered in a good day of trading, as the shares of M&M rose by 3.90 per cent at 1.52 pm after a hike of 4 per cent. The shares of other car makers also witnessed a rise after the budget was announced by the Finance Minister.