Infrastructure cess fumes automakers, car prices to go up over Rs 1 lakh
Finance minister Arun Jaitley’s call to levy an ‘infrastructure cess’ of up to 4% is set to cause a hike prices of mass market vehicles by up to Rs 2,000 more, while big diesel SUVs and sedans may get costlier by over Rs 1 lakh.union budget Updated: Feb 29, 2016 22:20 IST
Finance minister Arun Jaitley’s call to levy an ‘infrastructure cess’ of up to 4% is set to cause a hike prices of mass market vehicles by up to Rs 2,000 more, while big diesel SUVs and sedans may get costlier by over Rs 1 lakh.
In the aftermath of pollution problems in the Capital, Jaitley singled out diesel vehicles and decided to impose 2.5% cess on sub-four-metre diesel vehicles and engine capacity not exceeding 1,500cc, while higher engine capacity and SUVs and bigger sedans were slapped a cess of 4% on the value of the car.
These are over and above a cess of 1% on petrol/ LPG/CNG driven vehicles of length not exceeding 4 meter and engine capacity not exceeding 1,200cc.
Reacting to the proposals, Maruti Suzuki chairperson RC Bhargava told PTI: “Obviously it will lead to rise in car prices. It came as a surprise for us as we were not expecting such kind of a cess.”
Lamenting Jaitley’s announcements, Bhargava said: “For pollution, we have already been asked to get to Euro 6 emission norms by 2020. It involves substantial amount of investment and would also add to the cost of vehicles. In addition, this additional cess, when cars contribute only around 2% of the air pollution, comes as a surprise for us.”
He, however, declined to comment on the quantum of the price hike.
According to industry estimates, as a result of the cess the increase in prices could range from Rs 2,500 on entry level small cars such as Maruti Alto or Tata Nano and can go over a lakh of rupees on high-end vehicles which are priced above Rs 30 lakh.
In his Budget speech, the finance minister said: “The pollution and traffic situation in Indian cities is a matter of concern. I propose to levy an infrastructure cess of 1% on small petrol, LPG and CNG cars, 2.5% on diesel cars of certain capacity and 4 per cent on other high engine capacity vehicles and SUVs.”
He also also proposed “to collect tax at source at the rate of 1% on purchase of luxury cars exceeding value of Rs 10 lakh”.
Hyundai Motor India Ltd (HMIL) senior vice-president (marketing and sales) Rakesh Srivastava said the infrastructure cess has come as a “dampener” for the auto industry.
“The auto industry has been experiencing growth challenges and there was an expectation of a scrappage scheme to remove high emission and low mileage vehicles. The taxation (infra cess) has come as a dampener and will effect demand, creating challenges towards sustainable growth,” he said.
When asked by how much the company’s vehicle prices will go up, he said it would range from Rs 3,000 on entry level small car Eon to Rs Rs 80,000 on SUV SantaFe, which are currently priced ranging from Rs 3.20 lakh to Rs 30.79 lakh (ex-showroom Delhi).
Expressing disappointment, Mahindra Group chairman Anand Mahindra tweeted: “In summary, despite our disappointment on the tax on cars, I see no reason for the mayhem in the market.”
Mahindra & Mahindra executive director Pawan Goenka said that imposing up to 4% cess for passenger vehicles is a concern for auto industry.
“However, one has to take it in stride, in view of all the priorities that we have for our economy and we in the industry have to manage it. Would have been good if some of the additional revenue from this cess was used to phase out older vehicles,” he added.
Hitting out at the Budget proposals, Audi India head Joe King said: “Government has not announced any positive initiatives for the industry which contributes so heavily to the manufacturing sector and overall economy.”
Stating that it negatively impacts the automobile industry, he further said: “We are disappointed that the industry’s demand on reducing excise duty has not been addressed. On the contrary, the infra cess has been added which will further affect the price and consequently demand.”
Also, he said, the industry needs to evaluate the impact of extra tax levy of 1% on purchase of cars above Rs 10 lakh.
Expressing displeasure, Toyota Kirloskar Motor vice-chairman and whole-time director Shekar Viswanathan said: “We would encourage the government not to just think based on size of the vehicle which has no relation to the technology. Taking older vehicles off the road should be a priority for the government.”
A Tata Motors spokesperson said: “While the passenger vehicle industry has been facing challenges over last few years, it has barely begun to show some signs of recovery. Additional cesses may disincentivise passenger vehicle customers, impacting the industry.”
Nissan India operations president Guillaume Sicard said the cess will definitely have an impact on the prices.
“We do not foresee that to be a major burden for small car buyers but the luxury cars and SUVs will feel the heat,” he added.
“There is no presentation on roadmap for GST implementation, additional Incentives for Electric Vehicles and Hybrids under FAME Scheme and the plan for Vehicle Scrappage scheme which is damper,” Sicard said.
Renault India operations country CEO and managing director Sumit Sawhney said: “Although the budget didn’t have much for the automobile sector, we are hopeful for some pro-business policies on a continual basis to benefit the industry.”
Hinduja Group of Companies (India) chairman Ashok P Hinduja said the auto sector will stand to benefit by the proposed amendment to the Motor Vehicles Act to allow the private sector participation in the passenger vehicle segment.
Price Waterhouse partner Abdul Majeed said: “...increase in tax on luxury vehicles, infrastructure cess from 1-4% as well as withholding taxes on bigger vehicles will have negative impact especially on bigger passenger vehicles.”
KPMG in India, head of automotive sector, Rajeev Singh said passenger vehicles will have a significant negative impact due to infrastructure cess.
“Also the announcement to deduct TDS on luxury vehicles with more than Rs 10 lakh will dampen their demand in the short term,” he added.
Other measures likely to negatively impact automotive companies include benefit of deductions for research that would be limited to 150% from April 1, 2017 and 100% from April 1, 2020, he added.
Various kinds of models, including three-wheeled vehicles, electrically operated vehicles, hybrid vehicles, hydrogen vehicles based on fuel cell technology, taxis, cars for physically handicapped persons and vehicles cleared as ambulances or registered for use solely as ambulance will be exempt from the Infrastructure cess.
No credit of this cess will be allowed, and credit of no other duty can be allowed to pay this cess, Jaitley said.
Jaitley, however, gave some relief to the environment friendly vehicles.
“The exemption rate of duties which existed on parts of environment friendly vehicles with expiry on March 31 this year I am planning to continue that,” Jaitley said.
As far as excise duties are concerned, currently, small cars that are less than four meters in length attract excise duty of 12.5%, while cars with more than four meters length but with engine of less than 1,500 cc capacity attract a duty of 24%.
Further, vehicles with engine capacity of more than 1,500cc are charged an excise duty of 27% and while those with ground clearance of more than 170 mm attract an excise duty of 30%.