The car manufacturers in India have been in a lot of confusion lately. The ambiguity began with the release of the budget for the year 2013- 2014. The budget ministry division (CBEC) has raised the excise duty on the SUV’s for the present year from 27% to 30%. This has given a rough time to Maruti Suzuki SX4 as well as Toyota Corolla Altis since then. But now, CBEC has addressed their problem and it has been stated that Maruti SX4 and Corolla Altis will pay 27% excise duty and not 30%.
CBEC (Central Board of Excise and Custom) is a division of budget ministry. It is responsible for deciding the service tax, central excise and customs in India. It is placed under Department of Revenue of the Ministry of Finance. In the budget released for the year 2013- 2014, CBEC had raised the excise duties on SUV’s from 27% to 30%. In order to qualify for the hike in excise, SUV must have 3 features- an engine of more than 1500 cc, a length of more than 4000 mm and a ground clearance of more than 170 mm. All the SUV’s fulfilling this will pay the higher duty of 30% from this year on.
What is the confusion you say? Well there are at present many vehicles out there which are not SUVs, but they do have the above mentioned qualifying features. Maruti SX4, Toyota Corolla Altis and Honda Civic are actually sedans, but they share common specification with SUV’s. This led to the confusion among the manufacturers. The increased levy is for SUV’s and not sedans. But if we take into account the 3 parameters laid down by CBEC, then these sedans too qualify for the increased excise. So the companies were waiting for a decision to arrive from the board of finance.
Now finally, CBEC has passed a judgment. As per this, only SUV’s will pay 30% duty and not any ‘SUV like’ sedans. The statement issued by CBEC in its circular drops the confusion saying that “Maruti SX4, Honda Civic and Toyota Corolla Altis are stated to satisfy all the three conditions but they are not popularly known as SUVs and neither are they known so in trade parlance. They are reportedly known as sedans in trade and common parlance. In view of the above, it is clarified that these motor vehicles, which are known as sedans, will attract the excise duty of 27% as applicable to large segment cars.” Honda has terminated Civic from its line up and therefore this decision is of great value for Maruti and Toyota.
While pricing a car, everything is taken into consideration, including the excise duty to be paid. An increase in excise is rarely absorbed by the manufacturing firm and is passed on to the customers by increasing the car selling price. Thus a 3% hike can make the SUV segment a little pricier than before. Although its a relief for Maruti and Toyota who have escaped the burden of 30% duty.
The Finance Minister of India, Mr. P Chidambaram said in his budget speech that “SUV’s occupy greater road and parking space and ought to bear a higher tax. I propose to increase the excise duty on SUVs from 27 percent to 30 percent. However, the increase will not apply to SUVs registered as taxis.”
The large sedan manufacturers have been spared this time. But the SUV producers are not very happy with this decision. The market has not been very friendly this year and the sales in the SUV segment have seen a significant decline which is a big problem for these companies. Now adding to their misery is a 3% excise hike. The manufacturers are demanding a reduction in levy from 30% to 27% for SUV’s as well.