The 2013-14 Union Budget has posed immense difficulties for many utility vehicle makers by increasing the excise duty levied from 27 per cent to 30 per cent. Interestingly, the premium sedans offered to domestic consumers have been spared from the excise hike on account of their small ground clearance. This ensures that the luxury saloons, priced almost three times as a entry level Sports Utility Vehicle (SUV) will not be affected by the latest change in the excise duty slab, post the Union Budget.
Evidently, the government's increase in excise duty is valid on all models that are powered with 1500 cc (or more) engines under their hoods (both petrol and diesel), are over 4 metre in length and possess a ground clearance of 170 mm. The 3 per cent additional excise could lead to a potential increase in price tags of the models fulfilling the aforementioned conditions in the range of Rs. 20,000 and Rs. 60,000. Accordingly, the retail values of Mahindra's Scorpio and XUV500 along with Toyota Innova could get dearer by up to Rs. 60,000.
The 30 per cent duty as per the latest excise duty slab will not be applicable in the case of several D and D+ sedans. The models in these categories comprise the likes of Skoda Laura, Volkswagen Jetta, Chevrolet Cruze, Toyota Camry, Honda Accord, Hyundai Sonata Fluidic, Volkswagen Passat, Nissan Teana and Skoda Superb amid others. Interestingly, all of the aforementioned luxury saloons will see no duty hike and are powered with an engine exceeding the 1,500 cc cut off; besides having a ground clearance lower than 170 mm.
Expressing his views on the present confusion and sparing of luxury saloons according to the 2013-14 Union Budget, Pawan Goenka, President, Automotive Division and Farm Equipment Sector, Mahindra and Mahindra Limited, was quoted as saying, “We are perplexed with the criteria of ground clearance as the way to define which vehicles should attract the extra 3 per cent excise duty. First, we are not clear why higher ground clearance should be a demerit. Second, with this, some of the SUVs fall outside this definition and many of the sedans come under it. Most of the luxury vehicles are totally spared.”
Industry experts believe that the latest increase in excise duty could shift the trend of investing in SUVs towards luxury sedans, among the Indian car enthusiasts. Since, domestic consumers are quite sensitive in terms of price considerations, the premium sedans will definitely seem like a more viable option to them as compared to utility vehicles. It is going to be an interesting thing to see how the increase in excise duty impacts the overall sales of saloons and SUVs retailed in the Indian auto market.