Budget 2019

Little sops, added cess leave auto sector piqued

Our Bureau Mumbai | Updated on January 20, 2018 Published on February 29, 2016

Pricey buy Prospective buyers at a car showroom in Hyderabad on Monday. Carmakers and dealers fear that an infrastructure cess on vehicles may bring down the demand for new cars NAGARA GOPAL

Infrastructure cess on small petrol/CNG/LPG cars and diesel cars upto 1500 cc to hurt the demand.

New infrastructure tax, additional levy on ₹10-lakh-plus cars seen to hit demand

With the recent ban on diesel vehicles in Delhi, quickly followed by news of BS VI emissions norms advanced to 2020, the auto sector hoped the Budget would offer some breaks on the clean air drive.

This would have ideally meant a policy roadmap on scrapping old vehicles along with a larger outlay of incentives for electric vehicles.

Instead, what it got was a 1 per cent infrastructure cess on small petrol/CNG/LPG cars (which are less than 4 metres long with engine capacities of up to 1,200cc), 2.5 per cent on diesels (up to 1,500cc) and 4 per cent on large cars and SUVs.

Add-on burden

In addition, the Centre plans to collect at source 1 per cent tax on luxury cars priced upwards of ₹10 lakh.

At a time the industry is just about getting out of the woods, this was perhaps the last thing it needed.

In the short term, customers will make a beeline for petrol compacts, where the price increase would be minimal, while steering clear of large cars and SUVs.

“On the face of it, imposing up to 4 per cent cess for passenger vehicles is a concern. It would have been good if some of the additional revenue from this cess was used to phase out older vehicles,” said Pawan Goenka, Executive Director, Mahindra & Mahindra.

It was a view seconded by Guillaume Sicard, President, Nissan India Operations.

“The infrastructure cess will definitely have an impact on prices. We do not foresee this to be a burden for small car buyers but luxury cars and SUVs will feel the heat,” he said.

Nissan is still trying to figure out the modalities of collection of 1 per cent TDS on ₹10 lakh-plus priced cars. According to Sicard, curbing incentives on in-house R&D spends from 200 to 150 per cent is also not very positive. Likewise, the absence of a roadmap for GST, incentives for EVs and hybrids and plan for vehicle scrappage is seen as “a dampener”.

Joe King, Head, Audi India, is categorical that the Budget negatively impacts the automobile industry.

“We are disappointed that the industry’s demand on reducing excise duty has not been addressed,” he said, adding that the infra cess on cars and SUVs would affect demand. “Also, we need to evaluate the impact of extra tax levy of 1 per cent on purchase of cars above ₹10 lakh,” he added.

Our Chennai bureau reports: Sumit Sawhney, CEO and MD, Renault India, said there are little fillips for the industry.

One positive for the auto sector is the announcement of investments and reforms in agriculture and infrastructure, which will have a rub-off effect on the core sectors that drive the economy, he added.

The industry had hoped for progressive steps, such as a scrappage incentive scheme, to keep older cars off the roads, said Sawhney. This would benefit the environment, reduce fuel consumption and propel demand for greener and more efficient vehicles.

A statement from Hyundai Motor India said the surcharge levied on cars priced over ₹10 lakh, coupled with the infrastructure cess, will increase the cost of acquisition. The auto industry is hopeful of early introduction of GST and merging of all taxes for a simplified tax structure, it added.

KM Mammen, Chairman of the Automotive Tyre Manufacturers Association (ATMA), said the industry had hoped that customs duty on tyres will be enhanced to bring it closer to the duty on rubber.

This would have offered the domestic industry a level playing field. An increase in import duty on tyres would have also checked the surge of cheap imports from China.

Tyre imports

Imported tyres from China have come to account for 40 per cent of the replacement tyre market in truck and bus radials, a category that has attracted most of the ₹36,000-crore investment by the tyre industry over the past four years.

A welcome step is the proposed investment of ₹97,000 crore in the development of roads and highways including rural roads. It will give a fillip to the transport sector and generate demand for tyres, added Mammen.

Published on February 29, 2016
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