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Union Budget 2016 - Luxury Cars and SUVs become more expensive

Snapshot: The Union Budget provided an impetus for development of Roads and Infrastructure, where Arun Jaitley has proposed a total investment of INR 97000 crore for Road & Infrastructure development.

The Finance Minister, Arun Jaitley has already announced the Union budget 2016 for the Auto Industry. This Union Budget has provided an impetus for development of Roads and Infrastructure, where Arun Jaitley has proposed a total investment of INR 97000 crore for Road & Infrastructure development with INR 19000 crore allocated only for development of rural roads. But, the most disappointing part of this budget is the additional Infrastructure Tax to be levied on cars above Rs 10 lakh apart from the different taxes levied on specific vehicles.

Where Auto Industry was expecting some announcements like Scrapping Policy - Scraping of older vehicles for recycling, lower Interest Rates on Automobiles, reducing of the customs duty and excise duty prior to this budget and more which was rejected by the finance minister. Arun Jaitley has proposed that the cars above the price of INR 10 lakh will be more expensive. A supplementary levy of 1 per cent to be collected at source, 1%percent of the Infrastructure Tax will be imposed on petrol, CNG and LPG Cars of length not exceeding 4-metre with an engine capacity below 1200cc. And other taxes levied on vehicles are additional 2.5% tax on sub-4 metre diesel cars with engine not exceeding 1500cc, and 4% tax on bigger sedans, MPVs and SUVs with higher engine capacity, while Electric Vehicles, Hybrids, Hydrogen fuel-celled vehicles are exempted.

Tax patterns for the customs duty & excise duty on vehicles in India are as follows.

Customs Duty 

Criteria

Import Duty %

Used car import

125

Cars CBUs whose CIF value is more than $ 40,000

or Petrol Engine > 3000 CC

or Diesel engine > 2500 CC

100

Cars CBUs whose CIF value is less than $ 40,000

and Petrol Engine < 3000 CC

and Diesel engine < 2500 CC

60
Two-wheeler CBUs with engine capacity <800 cc 60
Two-wheeler CBUs with engine capacity >=800 cc 75
Commercial Vehicle CBUs (Trucks & Buses) 20
CKD containing engine or gearbox or transmission mechanism in pre-assembled form but not mounted on a chassis or a body assembly 30
CKD containing engine, gearbox and transmission mechanism not in a pre-assembled condition 10

Excise Duty

Vehicle Category 

Excise Duty
Small cars

12.5

Length >4m but engine capacity less than 1500cc 24
Length >4m and engine capacity more than 1500cc 27
SUVs/MUVs (length >4m, engine capacity >1500cc and Ground clearance >170mm) 30
Hybrid cars 12.5
Specified components of Hybrid vehicles 6
Electric cars, 2W & 3W 6
Specified components of Electric vehicles 6
Buses 12.5
Trucks 12.5
Three wheelers 12.5
Two wheelers 12.5

Here are some of the reactions that poured in from some of the known faces in the automotive industry after the proposals made by Arun Jaitley, Finance Minister, India –

Mr. Joe King, Head, Audi India

"The budget presents a transformative agenda with clear-cut focus on initiatives for farmers, rural sector and infrastructure development. However, it negatively impacts the automobile industry. We are disappointed that the industry’s demand on reducing excise duty has not been addressed. On the contrary, 1% Infra cess on Petrol, CNG, LPG cars, 2.5% on small diesel cars and 4% on bigger diesel cars and SUVs has been added which will further affect the price and consequently demand. Also, we need to evaluate the impact of extra tax levy of 1% on purchase of cars above Rs.10 Lakh. Government has not announced any positive initiatives for the industry which contributes so heavily to the manufacturing sector and overall economy." 

Dr. Pawan Goenka, Executive Director, M&M Ltd

“The Budget places strong emphasis on agriculture, rural economy, infrastructure and social sector.  This is what I was hoping for. The resurgence and thrust on the PPP in infrastructure is most welcome. I also appreciate laying down some very clear goal posts on farm income and on village electrification.  Perhaps more could have been done for financial sector and taxation, though staying with the FRBM target was an unexpected bold move and perhaps does put some spending constraints on the Government. On the face of it, imposing upto 4% Cess for Passenger vehicles is a concern for auto industry. However, one has to take it in stride, in view of all the priorities that we have for our economy and we in the industry have to manage it. Would have been good if some of the additional revenue from this cess was used to phase out older vehicles.”

Guillaume Sicard, President, Nissan India Operations

“The Union Budget 2016 has continued with the government’s focus on maintaining fiscal deficit, agriculture, infrastructure development and recapitalizing of PSU banks. The budget gives special focus on the economy at the grass-root level which will have an overall positive impact in the long run. Additionally, we also welcome Government’s decision to amend the Motor Vehicle Act in passenger vehicle segment to allow innovation. This, coupled with a focus on infrastructure will help improve the overall public transport in the country. There is not much for Auto industry in this budget. Infrastructure cess increase up to 4% on passenger vehicles will definitely have an impact on the prices. We do not foresee that to be a major burden for small car buyers but the luxury cars and SUVs will feel the heat. We are still trying to understand the modalities of collection of TDS of 1% on more than 10 lakh priced cars. Further, curbing incentives on in-house R&D spends from 200% to 150% is not very positive. There is no presentation on roadmap for GST implementation, additional Incentives for Electric Vehicles and Hybrids under FAME Scheme and the plan for Vehicle Scrappage scheme which is damper.”

Dr. Wilfried Aulbur, Managing Partner & CEO, India, Chairman Middle East, Head Automotive Asia at Roland Berger

“The budget overall has been muted as far as passenger vehicles are concerned. The charges on luxury vehicles and high capacity SUVs may not dent sales, but clearly, these charges don't support demand either. The same holds true for the pollution cess on various car models. Increased expenditure for rural areas is likely to increase rural demand and hence drive consumption. This would overall be positive for the industry, increase capacity utilization and in the long run drive private capital expenditure. Together with the 7th pay commission and OROP this hopefully puts enough money into the pockets of Indian consumers to support domestic growth. Global economies are not doing very well. Exports into many markets with low or negative GDP growth are falling and indicate the weakness in the global environment. Hence, India will have to generate her own success story focusing on domestic fundamentals.”

Click here to read more about Top Five Announcements for Auto Industry!

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