The Hindu Business Line : Set right anomalies in excise structure, say carmakers

Taxing times
Manufacturers of large cars and SUVs, which pay 24 per cent duty, feel they are at a disadvantage
Two-wheeler makers rule out price cuts as they were impacted by high steel, rubber prices in the last 6 months

Murali Gopalan

Mumbai, Nov. 19 The auto industry is still flummoxed over the Finance Minister, Mr P. Chidambaram’s comment on Tuesday that prices of cars and two-wheelers could be reduced in order to stimulate demand in the market.

In a lighter vein, a section of the industry believes this could have been prompted by Honda Siel Cars’ move to reduce prices of its Civic Hybrid by an astounding Rs 8 lakh at one go.

It was obviously done to clear stocks but the Japanese automaker could have lost quite a bit in the process considering that the Civic Hybrid was directly imported which meant coughing up duty of 100 per cent plus. Customers, of course, made a beeline for the car and stocks were cleared in record time.

However, it remains to be seen if Honda can afford an encore or will choose to take a break for some months.

The Finance Minister has, of course, hinted that a downward revision in excise duties could be considered but the industry believes that this can only be applicable to large cars and sport-utility vehicles (SUVs) which pay 24 per cent and are at an “obvious disadvantage” compared to small cars and two-wheelers at 12 per cent.

While ruling out any price cuts for the moment, the auto sector believes that the time is actually right to set right some anomalies in the present excise duty structure.

The first is to get rid of the added Rs 15,000 levy on cars and SUVs with engine capacities of 1500cc-2,000cc and Rs 20,000 on those exceeding 2,000cc.

This was imposed some months after Budget 2008 with the obvious intention to penalise gas guzzlers but can be withdrawn now if a reduction in prices is the need of the hour.

Further, the idea was to penalise gas guzzlers when the crude price situation had gone out of control and demand for diesel was spiralling by the minute. The situation has eased comfortably since then.

Manufacturers of large cars also believe that they are at a “serious and unfair disadvantage” thanks to the heftier 24 per cent excise duty.

The Finance Minister has reiterated that small cars need greater sops especially with the country now becoming a critical production hub for the rest of the world.

Swift conundrum

However, the very definition of a small car at four metres with maximum engine capacities of 1500cc for diesel and 1200cc for petrol has led to bizarre situations where the petrol version of the Suzuki Swift becomes a large car and its diesel sibling a small one!

In the process, it means payment of 24 per cent excise for one and 12 per cent for the diesel option, an anomaly which the industry believes ought to be set right which could, otherwise, lead to an excessive queuing up for compact diesel cars.

The two-wheeler sector, of course, is categorical that there is no way prices can be reduced at a time when manufacturers are just about coping with lower material costs.

Most of them had to grin and bear it when prices of steel, rubber etc hit the roof over the last six months. They just could not risk passing this burden on to customers for fear of losing market share in the process.