Photo: Bloomberg

Photo: Bloomberg

Auto industry seeks lower tax on big cars

Auto industry seeks lower tax on big cars

New Delhi: With sales of cars contracting 24% in October, the automobile industry has approached the Union government with proposals for the next budget that include cutting tax on big cars.

Photo: Bloomberg

“In order to grow, we would need support from the government," one of them said. “While we have requested for an unchanged excise duty structure for small cars, we want the government to reduce the duty on larger cars."

The government reduced the excise duty on small cars to 8% from 12% in 2008 to boost demand in a depressed market. In February 2010, as the sector revived, finance minister Pranab Mukherjee increased the tax to 10%.

“Sales in this (large car) segment have contracted significantly," said a second person familiar with the development. “Industry wants some benefits to be extended to customers in order to get them back to showrooms."

The auto industry, represented by the Society of Indian Automobile Manufacturers, or Siam, also wants the government to remove the additional 15,000 excise duty on cars with 1,500 cc and above engines.

Domestic car sales dropped to 138,521 units in October from 181,704 units in the same month last year.

“I think the industry is asking for too much," said Nikhil Deshpande, an analyst at PINC Research, a Mumbai-based brokerage. “The government is already cash-strapped and needs to bridge the fiscal deficit. In the given conditions, cutting excise duty would be the last thing that government would want to do."

This is the fourth consecutive decline in car sales on a year-on-year basis since July.

Siam last month slashed its sales growth forecast for this financial year to 2-4%, the second cut in its projections, since an initial forecast of 16-18%.

To end the differential duty regimes across states, the industry wants the government to include road tax and octroi in the goods and services tax, likely to be applicable from the next financial year.

“Another thing that we want is the modernization of fleet in India," said the second person cited in the story. “Government should ensure that the cars manufactured before 2000 should not be allowed to ply on Indian roads in order to put a cap on pollution level. This applies to all kind of vehicles, be it cars or commercial vehicles."

The industry has even proposed to set up 10 inspection and certification centres to check vehicles for their eligibility to run on Indian roads based on their pollution emitting levels.

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