The Hindu Business Line : Excise on small cars, 2-wheelers slashed

The domestic auto industry got a major boost with the Finance Minister, Mr P. Chidambaram, announcing a 4 percentage point reduction in excise duty on two-wheelers, three-wheelers, passenger cars, buses and chassis to 12 per cent from the current 16 per cent.

In the Union Budget 2008-09, the Government reduced excise duty on two-wheelers to help the segment revive after witnessing months of declining sales due to high interest rates. The Government also extended a similar reduction in the excise duty of small cars to make India a hub for small car.

In February 2006, the Government had reduced the duty on small car from 24 per cent to 16 per cent. It was at that time that specifications for the small car had been laid out in terms of length and engine size. As per these guidelines, cars with length less than 4,000 mm and a petrol engine of 1.2 litre or less and a diesel engine of 1.5 litre would qualify for the small car benefits. While companies such as Maruti Suzuki and Hyundai are already exporting their compact cars from India, global carmakers such as Volkswagen, Honda, Nissan-Renault are also making additional investments to leverage these incentives. However, with reduction in the excise duty of small cars, the auto industry is of the view that the gap between the premium car and small car would further widen which may affect the sales of the luxury cars.

In case of hybrids, the Budget has also offered an excise duty reduction on hybrid cars from 24 to 14 per cent. The proposed move would help the domestic companies such as Tatas and Mahindras that are gearing up in this direction. But it would also help companies like Honda that would be introducing its Civic Hybrid shortly by a reduction in the countervailing duty to 104 per cent from 114 per cent.

The Government has also reduced the excise duty on electric cars from 8 per cent to nil.

“However, full excise duty exemption for electric cars may not necessarily lead to reduction in its price as the duty on input costs except for a few items was still at 16 per cent. Hence, there will not be any impact on the output price as well,” said Mr Chetan Maini, Managing Director of Reva electric car.

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