Maharashtra government lowers registration tax on cars but VAT issue remains unresolved even though VW halts investment plans

Friday 18 May 2012, 13:37 PM by

The Government of Maharashtra has announced that it will now levy registration tax of only 20 per cent on imported and company owned vehicles. Previously, buyers had to pay excise duty of 22 per cent on cars running on petrol and 26 per cent on those powered by diesel. The government was forced to bring down the tax after the transport department revealed that thousands of buyers were heading to neighbouring states in order to get their vehicles registered. This is because this registration tax in other states is lesser, though this practice may stop soon since the decrease in tax has come into effect immediately.

On the other hand, the Government of Maharashtra has maintained status quo in the issue regarding the refund in Value Added Tax (VAT) on vehicles manufactured in the state. It has not budged even though Volkswagen AG became the latest automotive giant to announce that it was halting investments in the state as of now. Back in January 2012, the German auto major had said that it will infuse a total of Rs. 2,000 crores here.

Reacting to questions about the potential impact of the change in Maharashtra's VAT refund policy on VW's growth plans, John Chacko, Chief Representative, Volkswagen Group India, commented, "The normal investments required for usual operations of the company is going on but the big plans for the future have been put on hold at the moment."

Previously, the state attracted auto makers to set up production plants in Maharashtra by refunding the VAT levied on all vehicles. However, this policy was changed in 2011 and the government began refunding VAT on the models sold within the state only.

Saying that VW wants the state government to stick to its promises, Chacko stated, "We are talking to the state government to sort out the issue. We want to work in a stable conducive environment and would like to get what was committed to us." However, he also emphasised that the company will not be averse to looking at other options if the issue is not resolved.

The company had declared that it will set aside Rs. 2,000 crores in order to bolster installed capacity by 2013, reinforce the focus on research and launch new models. Presently, Volkswagen AG operates manufacturing units for its VW, Audi and Skoda brands at Chakan and Aurangabad in the state. The group plans to raise the capacity at Chakan from the current 1.1 lac units to 1.3 lac units. In 2008, it had declared that it will set aside Rs. 5,800 crores to build this facility.