MNC Car Majors Hit A Roadblock In Tamil Nadu

Chennai, September 16: | Updated: Sep 17 2003, 05:30am hrs
The slogan Be Indian, Buy Indian was consigned to history around the time India embraced liberalisation in early 90s. Rightly so, as open markets have no place for such words. But there are still many like the Tamil Nadu government whose heart beats for India and products manufactured in India. Its sharply higher sales tax on imported products is proving to be a major sore thumb for the MNC car majors whose completely built-up units (CBUs), as a result of this tax structure, are pricier in the state. It has also raised questions as to whether a state can differentiate between imported and local products after the former have suffered customs duty.

Tamil Nadu government charges a sales tax of 20 per cent for CBU vehicles as against 12 per cent for those manufactured in India. This has meant that products such as Ford Mondeo, Hyundais Terracan and Toyota Camry are priced substantially higher in Tamil Nadu than rest of the country which has consequently impacted their sales in the state.

Ford Mondeo costs (ex-showroom) Rs 17.41 lakh in Tamil Nadu while the same product is priced at Rs 16.11 lakh in Bangalore, Rs 16.12 lakh in Delhi and Rs 16.33 lakh in Pune. Between December 2001 (when Mondeo was launched) and March 2002 (when the higher sales tax levy on imported cars was introduced) Ford India was selling around 15 to 20 cars a month in Tamil Nadu. Today they hardly sell any Mondeo in the state.

Similarly, Hyundais Terracan costs Rs 20.63 lakh in Chennai compared to Rs 18.50 lakh in Delhi, Rs 18.68 lakh in Bangalore and Rs 18.63 lakh in Ludhiana. Of the 77 vehicles sold so far since its launch earlier this year, only six have been in Tamil Nadu.

Toyota Camrys performance has been relatively better. It has sold 69 units in Tamil Nadu of the 812 sold in India since launch in November 2002. But this has been possible as it absorbed the higher sales tax charge. We try to keep the prices on par as much as possible in most markets, a senior Toyota official said. Camrys Vi version costs Rs 17.47 lakh in Chennai, Rs 17.22 lakh in Delhi and Rs 16.92 lakh in Mumbai.

Initially, Ford India too tried to absorb a portion of the higher sales tax cost on Mondeo but later gave up the practice and began to pass on the cost to the customer once it became clear that the higher rates may stay put.

This move by the Jayalalithaa government to tax imported goods consumed by the higher strata of the society, to raise some much needed revenue for the state exchequer, has raised few questions as well. All imported product suffer duties as determined by the Central government. Under such circumstances can a state government tax imports A duty-paid imported product should not be subject to further differentiation vis-a-vis those manufactured in India, officials from MNC car majors argue.

They also point out the fact that such a move has deprived consumers in Tamil Nadu from benefiting from latest technology at a price which is same as those paid by their fellow citizens elsewhere in the country.

Attempts by the companies to get the government see their point of view has failed so far. Value added tax (VAT), if implemented, would remove this differentiation and that is their only hope now unless otherwise the Tamil Nadu government has a change of heart in the next state budget.