New cars in India are set to become expensive as the Finance Minster Arun Jaitley today announced new taxes on all the passenger cars from entry level to luxury ones. In his budget 2016 speech, the Minister announced 1 per cent infra cess on all the small petrol/LPG/CNG cars of length not exceeding 4-metre with an engine capacity below 1200cc.
Taxes on the sub-4 metre diesel cars with engines not exceeding 1500cc will be additioanl 2.5 per cent. While other higher engine capacity cars including bigger sedans, MPVs and SUVs have been punished with an additional 4 per cent 'high capacity' tax. There's also an additional 1 per cent 'luxury tax' on all the cars above Rs 10 lakh.
Budget 2016: Break-up of new taxes on cars, SUVs, sedans and MPVs
- 1 % infra cess on small petrol/LPG/CNG cars of length not exceeding 4-metre with an engine capacity below 1200cc
- 2.5 % additional tax on sub-4 metre diesel cars with engine not exceeding 1500cc
- 1% luxury tax on all the cars above Rs 10 lakh
- 4 % tax on bigger sedans, MPVs and SUVs with higher engine capacity
Though the taxes announced in the Budget 2016 will affect all the carmakers, the luxury tax on cars above Rs 10 lakh and 4 per cent tax on SUVs, could go against carmakers like Mahindra & Mahindra and Toyota.
Commenting on the new taxes Gaurav Talwar, Partner, Felix Advisory said: "The budget 2016 has imposted a tax collected at source of 1 % on purchase of luxury cars exceeding value of INR 10 lakhs. Further, an Infrastructure cess of 1% on small petrol, LPG, CNG cars, and 2.5% on diesel cars of certain capacity and 4% on other higher engine capacity vehicles and SUVs is proposed. The above measure will have an impact on the price of the cars, and may also impact overall demand."
While the aforementioned tax on all passenger vehicles will make them expensive, the Indian automobile Industry sees the allocation of Rs 97,000 crore on infrastructure for roads & highways as a positive move.
Commenting on this, Sumit Sawhney, CEO & MD at Renault India said, “Allocation of Rs 97,000 crores for Roads and Highways for FY 17 is a big boost."
Special focus on rural infrastructure might help boost rural economy, and could improve the sales of entry-level two-wheelers in rural areas. In budget 2016, the government announced Rs 55,000 crore for roads & highway and a total of Rs 97,000 crore for new roads.
Commenting on the government's announcement on road projects, Suraj Ghosh, Principal Analyst, IHS Automotive said: "97000 Cr layout for road projects is a big positive, could boost rural demand for 2W and 4W in particular. It could also invigorate the LCV segment and help sustain growth in MHCV segment."
While on the new taxes announced by the government, he said: "A number of new taxes and levies will dampen sentiments in the short term. Another layer of tax doesn't help the already complicated tax structure in the manufacturing sector. Need for GST further increases. After the SC ruling and NGT order, diesel cars and SUVs end up as the usual scapegoats, again."
"No announcements on Scrap policy, long term layout for FAME subsidy nor excise duty cuts. Overall, it's not a budget the auto industry was anticipating for, so it will be another challenging year for the auto industry." he added.