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Duty hike to hurt auto industry

Automobile manufacturers say the government’s decision to tax large cars more would hurt the country’s automobile industry, which is already battling sluggish sales, reports Sumant Banerji.

autos Updated: Jun 15, 2008 22:04 IST
Sumant Banerji

The government’s decision to tax large cars more would hurt the country’s automobile industry, which is already battling sluggish sales, manufacturers said. Worse: it would do little to curb fuel consumption, they said, demanding a rollback.

In an unexpected move, the Finance Ministry on Friday said high-end cars, multi-utility vehicles and SUVs with an engine capacity of 1,500-1,999 cc will attract an additional duty of Rs 15,000. Those with an engine capacity of 2,000 cc and more will be taxed Rs 20,000 extra.

Nearly 4 lakh vehicles were sold under this category last year. The announcement surprised the auto industry and sparked protests.

“In the current situation of economic difficulties and spiraling inflation, the industry feels it is inappropriate for the government to increase the price of vehicles,” said Ravi Kant, managing director of Tata Motors, who is also the president of the Society of Indian Automobile Manufacturers.

"We vehemently oppose this excise duty increase and request the government to immediately withdraw the hike."

The duty hike affects all of the 15 passenger vehicle makers in the country.

The worst hit would be Mahindra and Mahindra,followed by Toyota and Tata Motors. All of M&M's vehicles would be costlier and would add Rs 206 crore to government revenues because of the new duties. Toyota and Tata Motors, which have a strong presence in the utility segment, will leave the central exchequer richer by Rs 98 crore and Rs 92 crore respectively.

"This hike was unforseen and unexpected. It will have an impact on demand and we will have to revisit our production forecasts and margins, which are already under pressure," said Ankush Arora, vice president (marketing and sales) at General Motors India. "There is nothing to suggest that just because a car has a bigger engine, it will consume more fuel."