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Government makes big cars expensive

business Updated: Jun 14, 2008 10:33 IST
HT Correspondent

If you’re in the market for a bigger set of wheels, be prepared to shell out at least Rs 15,000 extra.

In what seems like a move to prevent affluent consumers from buying big cars and contributing to the ever-increasing demand for oil, the government on Friday increased central excise duty on large cars, multi utility vehicles (MUVs) and sports utility vehicles (SUVs), of engine capacity exceeding 1500 cc.

Models such as Honda Civic, Skoda Octavia and Maruti SX4 would now be charged a specific rate of duty, in addition to the existing ad valorem rate of 24 per cent. For engine capacity ranging from 1500 cc to 1999 cc, a specific duty of Rs 15,000 per unit has been imposed. The duty rises to Rs 20,000 for engine capacities of 2000 cc and above. The duty on cars with engine capacity up to 1500-cc remains the same. It was not clear whether imported cars would attract an equivalent countervailing duty.

Friday’s notification is another disincentive for the mid-sized and executive car segment after two rounds of excise duty reductions in the small car segment. “This is bad news for the industry,” said Arvind Saxena, vice president (marketing and sales), Hyundai Motor India Ltd. “We were already under tremendous pressure due to high interest rates and increase in fuel price. Obviously there is a feeling that those who buy bigger cars are more affluent and should pay more but for an industry such differential taxation is not good.”

Already, the mid and premium segment’s sales performance has been below par in the first two months of this fiscal. While the small car segment grew by almost 20.5 per cent, the mid-size segment grew only by 10 per cent while the premium segment growth declined by 11.5 per cent.

“It has caught us by surprise,” said Janeshwar Sen, senior manager, Honda Siel Cars India. “Prices will go up for Civic and Accord. We would ideally like a level playing field between small and big cars but I guess we will have to do with whatever we get.”

According to him, costs will not only rise by Rs 15,000 or Rs 20,000 but much more as VAT will go up and so will road tax and insurance costs.”