The automobile industry in India has been quite vocal in its demand for lesser tax on SUVs below Rs.10 lacs since the union government levied higher excise duty on all SUVs in the last budget. Now they have received support from an important quarter. Union Heavy Industries and Public Enterprises minister Mr. Praful Patel has backed this demand of the auto companies.
The minister has said that there is certainly a need to relook and reassess the hike in excise duties on all SUVs, since under the Motor Vehicles Act SUVs are classified under various categories. According to him, because of this higher tax regime on all SUVs across the board, sales of cars like Mahindra Bolero and Tata Sumo has been affected which are used to ferry people in the rural areas. He went on to say that he has already taken up the matter with union finance minister Mr. P. Chidambaram and have suggested to him that SUVs which are priced under Rs.10 should have a different tax regime altogether.
He further said that the objective of the higher tax on SUVs should be to tax those people who use high-end cars and not to penalize everyone across the board. Because all these reasons he supports the demand raised by the automotive industry and it merits a reassessment. It must be mentioned in this regard that in the last union budget, the central govt hiked excise duties on all SUVs to 30 percent from the existing 27 percent.
The new rules concerning CKD, which will significantly increase vehicles costs, have got many consumers delaying their purchases and auto manufacturers who import CKD considering their options. The Minister for Public Enterprises and Heavy Industries, Praful Patel has reportedly requested the Finance Minister for giving the auto industry two more years’ time to fulfill the new import duty regulations regarding CKDs.
Patel was reportedly quoted as having said that they have given a formal request to the Finance Minister, with a request from the SIAM. The auto industry is currently asking for more time for setting up their facilities for more indigenisation. The minister also stated that auto manufacturers want two more year’s time for implementing the new rules, having forwarded the idea to the Ministry of Finance.
The FM, Pranab Mukherjee, had redefined meaning of CKD in the 2011-12 Budget for encouraging more local production of autos. Transmissions, gearboxes and pre-assembled motors were subsequently excluded from the CKD definition, which now attracts an import duty of 30% as compared to the earlier 10%.
The industry body of SIAM has requested the government to either decrease the duty or to give the manufacturers some more time for preparing for the localisation of auto components like gearboxes, transmissions and engines, before the revised import duty is imposed.
This step taken by the government will make vehicles produced in low volumes unviable commercially. For the luxury auto players like Audi, Mercedes and BMW, the increased import duty on CKDs will not push the price of their products higher, but also make it difficult for them to bring in new products in this market.
Audi has stated that the new rules would force it to change its India plans, though the other manufacturers have not yet commented on this issue so far. While Patel reportedly mentioned that this move will encourage indigenisation, he added that this issue is for the Finance Ministry to consider. According to the ministry it will take at least a year for indigenisation.