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Chidambaram has proposed to raise duty on sports utility vehicles from 27% to 30%, exempting those used for commercial purposes. Photo: Sandesh Bhandare/Mint (Sandesh Bhandare/Mint)
Chidambaram has proposed to raise duty on sports utility vehicles from 27% to 30%, exempting those used for commercial purposes. Photo: Sandesh Bhandare/Mint
(Sandesh Bhandare/Mint)

Budget 2013: SUVs, luxury cars to get more expensive

Chidambaram proposes to hike basic customs duty on luxury cars to 100% from 75%

Mumbai: Luxury cars, imported bikes and sports utility vehicles will become more expensive in India as finance minister P. Chidambaram has proposed to increase excise and customs duty on such vehicles.

He has proposed to hike basic customs duty on luxury cars to 100% from 75%. Import duty on motorcycles above 800cc will go up from 60% to 75%.

Chidambaram has also proposed to raise duty on sports utility vehicles from 27% to 30%, exempting those used for commercial purposes.

Since automakers are likely to pass on the hike to buyers, sales might be hit, said Puneet Gupta, principal at IHS Automotive, a market researcher.

“We would pass on the hike and increase price in the same proportion as we cannot absorb the hike," said Sandeep Singh, deputy managing director, marketing, at Toyota Kirloskar Motor Pvt. Ltd.

Sales of utility vehicles with engine capacity of 1,500cc and above are likely to be impacted. Officials at Mahindra and Mahindra Ltd, market leader for utility vehicles, did not respond to calls immediately. M&M’s stocks were trading at 876.20, down 1.69% at 2:32pm. The benchmark Sensex fell 0.68% at 19,022.76 points.

Although car sales have been sputtering, sales of sports utility vehicles sales have remained buoyant. The proposed hike may, however, slow the pace of sales growth of such vehicles, said Gupta.

In the 10 months to January, car sales declined 1.8% to 1,556,283 units, while utility vehicle sales expanded 56.9% to 451,935 units in the same period, according to industry lobby Society of Indian Automobile Manufacturers.

The increase in duty would only have a temporary impact on sales and SUVs will continue to be popular, said Wilfried Aulbur, managing partner at Roland Berger Strategy Consultants. “We don’t see a major shift in demand," he said.

It’s only a matter of time before they get used to the new increased price, Aulbur said. With yet another hike in the duty, luxury car makers will have to accelerate the localization pace to remain competitive, he said.

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