New Delhi: The government on Friday spared small cars and raised excise duties on those with engine capacities exceeding 1,500cc, which analysts say will push up prices of a quarter of the 1.5 million passenger vehicles annually sold in the country.
The move is likely to make up for the revenue loss to the exchequer stemming from the cut in petroleum duties last week.
In another development, the government also increased the export duty on iron ore, irrespective of the iron content, in an attempt to increase domestic supplies and dampen inflationary pressures in this segment.
An additional Rs15,000 per unit will be charged as Central excise duty on cars including multi-utility vehicles and sports utility vehicles with engine capacities ranging from 1,500cc to 1,999cc, the government said in a statement. For vehicles with engine capcities of more than 2,000cc, the additional excise duty will be Rs20,000 per unit.
Cars of engine capacity up to 1,500cc were spared from the duty increase. A tax consultant from an audit firm, who did not wish to be identified, said the increase is likely a response to the duty cuts in the oil sector last week. The government expected a revenue loss of Rs22,660 crore in the current financial year after the cut in indirect taxes on crude and petroleum products on 4 June.
“Already (car) sales are down due to interest rate hikes,” said S. Ramnath, vice-president at IDFC SSKI Securities Ltd. “This will really spoil whatever little growth we were expecting.”
Jnaneshwar Sen, senior general manager of marketing at Honda Siel Cars India Ltd, said “the increase will be much more to the consumers because of VAT (value added tax), insurance and road tax” which will be calculated on the additional duty levied.
Analysts said the move will be a double whammy for bigger vehicles as sales of this category had already been expected to slow after last week’s hike in petrol and diesel prices. In the Union Budget announced earlier this year, finance minister P. Chidambaram reduced taxes on small cars by 4 percentage points, the second time in three years, and on two-wheelers, three-wheelers and buses by the same margin but left levies on bigger vehicles untouched.
The government also announced Friday an ad-valorem export duty of 15% on iron ore—a levy based on the value of goods rather than weight and quantity—irrespective of the iron content. It also increased the export duty applicable on iron and steel products such as bars and rods from 10% to 15%. Flat-rolled products of iron and steel, including galvanized products will henceforth be exempted from existing export duty ranging from 5-15%.