Taxes on cars raised in Maharashtra, corporate buyers worst hit

Friday 30 March 2012, 14:13 PM by

From 1st April 2012, the Government of Maharashtra will levy extra Motor Vehicle Tax (MVT) on individuals who purchase cars in the state, thus making it the most expensive market for vehicles in the country. The rise in prices comes after the state government proposed an increase of 2 and 4 percentage points, respectively, on MVT of petrol and diesel automobiles on 26th March 2012. This hike in cess will hit corporate buyers worse, which are responsible for 10-12 per cent of sales, as they would have to pay twice as much tax as other buyers.

While purchasing a Maruti Suzuki Swift DZire, buyers presently have to pay registration tax of Rs. 37,000, which amounts to 7.2 per cent of the vehicle's cost (Rs. 5.12 lacs). From 1st April 2012, individual buyers will be taxed at 9.4 per cent, whereas corporate buyers will pay tax of 18 per cent on the same vehicle. Corporate sales would include all bookings made by a person under the name of a company or a car directly bought by a firm.

Taxes on cars raised in Maharashtra, corporate buyers worst hit |
Taxes on cars raised in Maharashtra, corporate buyers worst hit

The rise in taxes is in addition to the increase in car prices across the nation due to the Union Government's decision of imposing higher taxes on passenger cars. Presently, MVT of 7 per cent is levied on vehicles costing up to Rs. 7 lacs in Maharastra. On the other hand, models with price tags up to Rs. 10 lacs and Rs. 20 lacs attract MVT of 8 and 9 per cent in the state, respectively.

Even though car makers like Maruti Suzuki and Hyundai India will remain insulated from the effects of the hike in taxes because the two small car manufacturers rely on hatchback models for profits, while corporate buyers usually opt for premium cars. On the other hand, corporate orders make up around ¼th of the sales of premium car manufacturers, such as Honda Siel, Mahindra & Mahindra (M&M) and Volkswagen (VW).

Officials of leading car makers of India said that this proposed raise in MVT in Maharashtra will bring down sales even lower in the state, which is responsible for approximately 11-13 per cent of all cars sold in the country. Jnaneswar Sen, senior vice-president of sales and marketing at Honda Siel Cars said that sales will come down in the medium term at least due to the two successive hikes in taxes.

Senior Vice-President of Sales and Customer Care, Automotive Sector, M&M, Arun Malhotra, commented, “Even before the increase, Maharashtra had the reputation of being one of the highest-taxed state for vehicles. The increase makes the cost of ownership even higher. This could have easily been avoided.”

Sugato Sen, Senior Director, Society of Indian Automobile Manufacturers (SIAM), the industry lobby of the nation, said that the organisation will appeal against this rise in taxes to the Government of Maharashtra. Shashank Srivastava, Chief General Manager for Marketing, Maruti Suzuki India, said companies will promote purchase of vehicles on the employees name after the tax comes into effect.

On the condition of anonymity, the Maharashtra zonal chief of a car company, commented, “Of late, in order to keep their books asset-light, companies buy cars only for very senior employees. They give the rest an allowance. We may see an acceleration in the trend wherein they encourage employees for individual purchase wherever they can.”

The hike in MVT will also affect car leasing and rental companies, which account for a large portion of the sales of cars for corporate use. After the proposed rise in taxes become effective in Maharashtra, such firms would also have to pay additional amount. According to Sunil Gupta, Chief Executive, Avis India, a car rental company, this hike will result in an increase in rental rates, which will eventually hurt their own business.

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