Big cars to cost more; duty hike on iron ore, steel

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New Delhi, Jun 13: Big cars are set to get a lot more costly. The finance ministry on Friday introduced a specific rate of excise duty ranging between Rs 15,000 to Rs 20,000 on every such car, in addition to the existing 24% excise duty. North Block has also brought about significant changes in the export duty on iron ore and a range of steel products.

Large cars, multi utility vehicles (MUVs) and sports utility vehicles (SUVs) with an engine capacity ranging from 1500 cc to 1999 cc will attract a specific duty of Rs 15,000 per unit such as Hyundai Verna, Honda Civic and Accord and GM Optra. A specific duty of Rs 20,000 was imposed on those vehicles with an engine capacity of over 2000 cc including Tata Safari and Sumo, Hyundai Tucson, Hyundai Sonata, Ford Endeavour.

“There is no change in the duty applicable to cars of engine capacity up to 1500 cc,” an official release said. It also pointed out that large cars are mostly used by the affluent sections, hinting that the duty hike would not hurt their pockets too much. The cars cost about Rs 11 lakh to Rs 19 lakh. However auto manufacturer’s said the move would hurt sales. “The government’s move will certainly slow down consumer demand for bigger vehicles, at least in the short term,” Ankush Arora, vice president (sales & marketing), General Motors said.

Others like Jnaneswar Sen, senior general manager (marketing), Honda Siel Car India said that by increasing the central excise duty on cars above 1500cc, the government seems to be supporting the development of small cars. It will skew the overall growth of the auto industry, he added.

Meanwhile, the Central Board of Excise and Customs has also hiked the export duty on iron ore and introduced a uniform ad valorem rate of 15%, “in order to further strengthen a policy regime that enables conservation of good quality ore and ensures its availability to domestic industry at a reasonable price.”

“This should lead to softening of prices of iron ore in the domestic market which in turn will give some relief to the rising input cost of the steel maker,” a domestic steel company said.

Export duty on iron ore was so far being levied at specific rates. If the iron content was over 62%, a duty of Rs 300 per million tonne (mt) was imposed, and if the iron content was below to 62%, it attracted Rs 50 per mt duty.

The export duty on a range of steel products was also hiked. The tax on long products like bars and rods; angles, shapes and sections and wire has been increased from 10% to 15% . The government hopes this will improve their availability in the domestic market. Inflation, which has rose to a seven year high of 8.75% in end May according to official figures, has been fuelled to a large degree by higher prices of iron ore and steel products, whose prices have risen by over 50% since January. However, the government has exempted flat-rolled products of iron and steel, including galvanized products, and pipes and tubes from export duty. Till now, they attracted an ad valorem duty ranging from 5% to 15%. “There would be a relief because retail companies have been taking a hit and meeting their long term export commitment to that extent their will be a relief,” a domestic steel manufacturer said.

All duty changes come into force with immediate effect, the release said. Finance ministry sources told FE that the decision to hike the export duty and central excise duties was mainly a revenue mobilisation method. The CBEC expects to collect about Rs 2,500 crore from the higher duty on cars and iron ore this year.

“The hike will help us partly recoup the revenue loss on account of duty concessions given to petrol and diesel earlier this month,” a CBEC official said. The duty changes in the customs and excise duty on oil and petroleum products, as a part of the bail out package for oil companies, are expected to cause revenue losses of about Rs 22,660 crore this fiscal.

The official however added that the exemption from export duty to some of the iron products would set back tax collections by about Rs 200 crore this year. The department however decided to provide the relief after a number of representations from the industry.