Auto industry proposes a lower tax on large cars

Friday 11 November 2011, 16:06 PM by

In view of the ongoing negativity that has engulfed the car sales like never before, the automobile industry, as its last resort, has knocked the doors of the Union government with proposals for the next budget. The troubled industry is expecting the government to pay heed to their deep-rooted problems, and has even asked for a tax cut on big cars.

Sources close to the development, on conditions of anonymity, confirmed that the automobile companies have suggested the government to go easy with the excise duty on large cars. It has probably expressed the desire to pull back the duty to 16% from 22%.

“In order to grow, we would need support from the government. While we have requested for an unchanged excise duty structure for small cars, we want the government to reduce the duty on larger cars,” they were quoted as saying.

Previously, the government had contracted the excise duty on small cars to 8% from 12%, in 2008, in order to bring the wandering demand back on track. However, in February 2010, as the sector resurrected, Finance Minister Pranab Mukherjee increased the tax to 10%.

Sources said that “Sales in this (large car) segment have contracted significantly. Industry wants some benefits to be extended to customers in order to get them back to showrooms.”

Society of Indian Automobile Manufacturers (SIAM), the apex industry body representing 38 leading vehicle and vehicular engine manufacturers in India, echoed the auto makers. It asked the government to slash the additional Rs.15,000 excise duty, on cars with 1500 cc and above engines.

Domestic car sales has dropped by 24% to 1,38,521 units in October, as against 1,81,704 units in the same month last year.

Nikhil Deshpande, an analyst at PINC Research, which is a Mumbai-based brokerage, said, “I think the industry is asking for too much.” He added that the government is already struggling with depressed revenues and needs to fill the void urgently. Therefore, in view of the current adversities, axing the excise duty would find a place at the bottom of the government's to-do list.

As a matter of fact, this is the fourth back to back decline in car sales, on a year-on-year basis, since July, and has jolted the industry quite badly.

SIAM, last month, envisaged a lower sales growth for this financial year pulling it back to 2% to 4%, as compared to an initial forecast of 16% to 18%.

According to sources, “Another thing that we want is the modernization of fleet in India. Government should ensure that the cars manufactured before 2000 should not be allowed to ply on Indian roads in order to put a cap on pollution level. This applies to all kind of vehicles, be it cars or commercial vehicles.”

Thus, the frantic auto industry needs to mend its ways, in order to ensure that its coveted position in the global market does not get a new holder, in the long run.

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