Budget 2019

Buying a new car? Think again

K Giriprakash Bengaluru | Updated on January 20, 2018 Published on March 01, 2016

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Higher excise can be a disincentive

Shyam Shetty, a director with Akshay Motors, a dealer for Mercedez Benz cars in the city, says with the proposed increase in excise duty in the Budget, car prices are set to go up and will impact the industry in various ways – from manufacturers, dealers to customers. As of now high-end cars attract an excise duty of 31.13 per cent which will now go up to 35.13 per cent, says Shetty. “Also, with the government making it compulsory for dealerships to collect 1 per cent on vehicles above ₹10 lakh, it could lead to a major disincentive for the industry.” Shetty points out that the passenger car industry is among the biggest creators of jobs and with the levy of additional taxes, it will be impacted adversely.

The Finance Minister has proposed an infrastructure cess of between 1 and 4 per cent on passenger cars and additional cess on fuel, which is expected to hit the industry hard.

Delay in recovery

Car owners, dealers of passenger cars and industry experts say that the recovery of the sector will take that much longer now. There is also the possibility of major cutbacks in hiring in the industry, they say.

Most of the passenger car manufacturers are expected to announce an increase in prices because of the infrastructure cess. Small petrol, CNG and LPG fuelled cars will attract 1 per cent cess, diesel cars of a certain capacity will attract 2.5 per cent and cars with higher capacity engines will attract 4 per cent cess. There are other disincentives as well because of the proposed amendment to the Motor Vehicle Act which will allow the private sector to operate intra-city buses. “The focus of the government is more on encouraging public transport which in effect means private mobility could take a hit, leading to lower sales of passenger cars,” Abdul Majeed, Partner and auto analyst at Pricewaterhouse Coopers told BusinessLine.

Laudable effort

Gaurav Karnik, a tax partner with global consultancy firm, Ernst & Young said while increase in infrastructure spending was a laudable effort, the passenger car industry will get impacted heavily because of the cess being imposed on them. Guruprasad Singh, a readymade garment factory owner, says that those who can afford to buy luxury cars will continue to do so but will be more hesitant to do so in future. “You can’t keep imposing more taxes on the rich. It will then become a disincentive to earn more,” he says.

Published on March 01, 2016
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