Mahindra feels let down with governments refusal to reconsider additional excise on SUVs

Saturday 04 May 2013, 10:35 AM by

Mahindra &Mahindra Limited, the country’s largest utility vehicle manufacturer, has publicly expressed frustration over the Indian Government’s refusal to reconsider the additional 3 per cent excise duty on Sports Utility Vehicles (SUVs). This came through an official company statement released in Mumbai on May 3, 2013. In the Union Budget for 2013-14 fiscal, the excise cess levied on SUVs was increased by 3 per cent to 30 per cent by the Government of India. The move created major dissension among the top Indian auto makers against the new ruling, as the market was already going through a highly demanding phase with consistently falling sales figures.

Expressing his opinion on the same, Dr. Pawan Goenka, President, Automotive Division and Farm Equipment Sectors (FES) at Mahindra & Mahindra Limited was quoted as saying, “While the tax in itself is a concern, we are perplexed about the criterion and justification of this additional duty. The hike in excise has also resulted in a situation where there is no level playing field between players in the industry as some of the best selling SUV models competing in the same price bracket do not come under the increased duty structure due to the specifications in the new definition of SUVs.”

Informing about if the additional excise could counteract the government offered subsidy on diesel fuel, Dr. Goenka further added, “If the increase in excise duty is to compensate for the diesel subsidies, why haven't all diesel vehicles been included under the proposed increase? If it is for road congestion, why haven't all large vehicles been subjected to the same tax hike? If this is a tax on the rich, why not tax all vehicles above a certain price point?”

Praful Patel, Cabinet Minister, Ministry of Heavy Industries (MOHI) and Public Enterprises, Government of India, has also appealed the government against the levying additional excise on SUV models proposed in this year’s Union Budget. Patel was joined by Society of Indian Automotive Manufacturers (SIAM), Chairman Finance Committee and other Indian automobile players, in the process. Mahindra & Mahindra had hoped that the representations made by the aforementioned parties could make the Indian Government reconsider its new ruling proposed in the 2013-14 Union Budget.

Mahindra & Mahindra had previously raised concerns that any additional excise cess levied by the Indian government would impact in a detrimental manner for the company’s revenue generation. The utility vehicle maker has also pointed out that the prevalent slowdown in Indian auto market could not take the beating given by a further hike in the excise duty, which would result in price increase of most of its models. At present, Mahindra & Mahindra has mostly utility vehicles in its product portfolio, along with Verito sedan and e2o electric hatchback. The company’s SUV models would see price hike as a direct impact of the additional 3 per cent excise duty levied, according to the latest directive by the Indian government.

Speaking on the impact of the additional excise tax on the company’s growth, Dr. Goenka added, “Our initial analysis shows that industry sales of SUVs on which excise duty has been increased by 3 per cent have gone down by 14 per cent in April 2013 as compared to last year. This is contrary to the 24 per cent growth witnessed in April 2012. The increase of 3 per cent excise has resulted in the decline, instead of growth in a segment which was the fastest growing till recently. Clearly, this is a big dampener and it has also affected the overall industry sales.”

Dr. Goenka further added, “The auto industry is now faced with a situation where not only has the excise on SUVs increased but diesel prices have also gone up at the same time which could have an impact on sales of diesel SUVs. In fact, the petrol-diesel price differential is currently 26 per cent as compared to 42 per cent a year ago. Of course, we have been saying that diesel price should be freed but this is happening at a time when the excise duty has also gone up. It creates a double whammy.”

According to Dr. Goenka, the additional excise duty could compel the company to modify its existing product portfolio. This means that the Indian Government’s stiff stance on the extra excise cess levied on SUV models has left the country’s leading utility vehicle maker with no option, but to realign its model range so as to benefit from lower excise duty.

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