Small car buyers in a pickle, Punjab government hikes MVT

Friday 31 August 2012, 11:25 AM by

Punjab government has abolished its slab system of levying motor vehicle tax (MVT) and will charge a uniform 6 per cent tax on all new vehicles from August 28, 2012. The move is expected to annoy the small car buyers as they will have to shell out more money from their pockets.

A senior official from Punjab Transport Department was quoted by Press Trust of India in Chandigarh, who said, “Those who buy two-wheelers and small cars will now have to pay more tax on buying a vehicle”.

According to the official, most of the new vehicle registration happens in the 2-4 percent range which is mostly populated by two wheelers, small and mid-sized cars. The hike in MVT will significantly generate higher revenues.

The state governments decision will surely cramp the decisions of small car and two wheeler buyers as they have to pay more than usual to get their favourite vehicles. The reported move will hit the the small car ( less than 5 lacs) buyers harder, as they will have to pay 4 per cent more than the current 2 per cent tax whereas, the two wheeler buyers will be paying 6 per cent MVT which is 2 per cent more than the present tax.

The decision of a uniform MVT by the government will add to the delight of premium car (worth Rs. 20 lacs or more) buyers, as the uniform rate will cut their current tax obligation by 2 per cent. Previously, they had to cough out 8 per cent MVT on new vehicles.

According to the last tax levying scheme, 2 per cent was fixed for cars worth less than Rs. 5 lacs, 4 per cent was levied on cars worth between Rs. 5 lacs and Rs. 10 lacs, 6 per cent for vehicles worth between Rs. 10 lacs and Rs. 20 lacs while the premium cars exceeding cost of Rs. 20 lacs were levied 8 per cent MVT.

Punjab's auto sector has shown immense growth over the years and the local public seems to be in love with motor vehicles. The premium cars like luxury saloons and powerful SUVs are considered a style statement by the Punjab residents. Reportedly, some 45,000 to 50,000 vehicles are purchased in Punjab every month and the annual collection from motor vehicle taxes amounts to Rs. 170 crore.

In addition to the uniform motor vehicle tax, the lump sum MVT has also been increased from Rs. 250 to Rs. 7500 according to the price range of the vehicle. This will generate an extra revenue of Rs. 108 crore annually for the state government.

The government's intentions are not quite clear, as on one hand they appeal buyers to invest in small fuel efficient cars instead of big fuel consuming vehicles and on the other hand they hike the tax on small cars while making the premium vehicles cheaper. It would be worth noting how the decision affect the car sales in small car and premium car segments.