Higher car cess not needed to protect government revenue, say companies

MUMBAI: India’s passenger vehicles industry, chasing its first double-digit growth in seven years, appears to be struggling to come to terms with the government’s likely move to charge a higher cess on luxury cars after the transition to a single producer levy from July.

Carmakers argue that higher cess was not needed to protect the government’s revenue base, with volume buoyancy ensuring sufficient levy mop-up even at a lower level of tax.

According to an ET Intelligence Group analysis, in the April to June quarter (before the GST kicked in), passenger vehicle makers would have paid an estimated tax of Rs 6,425 crore per month to the government. It rose to Rs 7,969 crore under GST regime led by higher volumes in July, indicating a 24% jump in the revenue outgo to the government (see table). While the tax was reduced, the volumes witnessed a significant increase in July.

To be sure, there was a significant destocking in June, which led to higher sales in July and hence higher tax revenue.So, passenger vehicle makers are flummoxed at comments of lower revenues to the government after the GST initially lowered the tax incidence on luxury vehicles.

Large cars invited a cumulative tax of 45-55% before the GST regime: Post GST, the tax came down to 43% – GST rate of 28% and additional 15% cess. Immediately, carmakers passed on the benefits ranging from Rs 10 lakh to the end Rs 10,000 to consumer, immediately leading to a strong demand.

Higher car cess not needed to protect government revenue, say companies

 

A senior executive at a leading Japanese car maker says that with every 1% increase in price, there is a decline of 2% in the volumes for small cars and about 1.5% decline in the volumes of bigger cars. Hence, the industry says a higher cess would mar the coming festive season that many expect should set a record.

“From the average of 2.5-2.6 lakh sales seen in the first quarter of FY-18, it was expected that the festive season and GST benefits should take the volumes to 2.752.9 lakh units, but we fear that the market will decline by 10-15% to about 2.2 lakh units,“ said the executive, requesting anonymity. Raahil Ansari, head of Audi brand in India, told ET: “One month’s sale can’t be treated as the gauge on revenue impact. You need at least a few months to figure things out. I thought that after five weeks, it was a little bit too premature to moot this big change.“

The Society of Indian Auto mobile Manufacturers or SI AM has retained its growth fo recast of 7-9% for the industry, and it may have to revise its forecast downward if a higher cess is implemented. The managing director of Hyundai Motor India, Young Key Koo, wondered what exactly is a luxury car in India? He said that his company is an affordable car maker and questioned the higher incidence of tax on models such as the Verna and Creta. “We have invested over Rs 1,000 crore for Verna to make it attractive and affordable for the common user upgrading to a better and safer car. Should not an Indian buyer upgrade to a better life? If the cess is increased, our sales will move into the negative territory,“ he said. Roland Folger, MD of Mercedes Benz India, questioned the basis for lower tax revenue to the government.

“Once the duty was put in place, it would take several weeks for the first tax payment to come in. I am wondering what the facts are that led to the assumption that there is really a lack of revenue,“ Folger said. The automotive industry contributes almost 49% of the manufacturing GDP and about 7.1% of the total GDP and employs over 65 lakh people. To be sure, India’s passenger vehicle market registered its highest ever monthly dispatches at 2.98 lakh units in July , thereby accruing higher revenue to exchequer. A dealer told ET that in April, May and June, prospective buyers were in the wait-andwatch mode to understand which way the prices are moving. Now, the talk of higher cess is compounding the problem, said the dealer with a European car maker. India’s passenger vehicles industry, chasing its first double-digit growth in seven years, appears to be struggling to come to terms with the government’s likely move to charge a higher cess on luxury cars after the transition to a single producer levy from July.
Carmakers argue that higher cess was not needed to protect the government’s revenue base, with volume buoyancy ensuring sufficient levy mop-up even at a lower level of tax.

According to an ET Intelligence Group analysis, in the April to June quarter (before the GST kicked in), passenger vehicle makers would have paid an estimated tax of `. 6,425 crore per month to the government. It rose to ` . 7,969 crore under GST regime led by higher volumes in July, indicating a 24% jump in the revenue outgo to the government (see table). While the tax was reduced, the volumes witnessed a significant increase in July.

To be sure, there was a significant destocking in June, which led to higher sales in July and hence higher tax revenue.So, passenger vehicle makers are flummoxed at comments of lower revenues to the government after the GST initially lowered the tax incidence on luxury vehicles.

Large cars invited a cumulative tax of 45-55% before the GST regime: Post GST, the tax came down to 43%–GST rate of 28% and additional 15% cess. Immediately, carmakers passed on the benefits ranging from ` . 10 lakh to the end . 10,000 to ` consumer, immediately leading to a strong demand.

A senior executive at a leading Japanese car maker says that with every 1% increase in price, there is a decline of 2% in the volumes for small cars and about 1.5% decline in the volumes of bigger cars. Hence, the industry says a higher cess would mar the coming festive season that many expect should set a record.

“From the average of 2.5-2.6 lakh sales seen in the first quarter of FY-18, it was expected that the festive season and GST benefits should take the volumes to 2.752.9 lakh units, but we fear that the market will decline by 10-15% to about 2.2 lakh units,“ said the executive, requesting anonymity. Raahil Ansari, head of Audi brand in India, told ET: “One month’s sale can’t be treated as the gauge on revenue impact. You need at least a few months to figure things out. I thought that after five weeks, it was a little bit too premature to moot this big change.“

The Society of Indian Auto mobile Manufacturers or SI AM has retained its growth fo recast of 7-9% for the industry, and it may have to revise its forecast downward if a higher cess is implemented. The managing director of Hyundai Motor India, Young Key Koo, wondered what exactly is a luxury car in India? He said that his company is an affordable car maker and questioned the higher incidence of tax on models such as the Verna and Creta. “We have invested over Rs 1,000 crore for Verna to make it attractive and affordable for the common user upgrading to a better and safer car. Should not an Indian buyer upgrade to a better life? If the cess is increased, our sales will move into the negative territory,“ he said. Roland Folger, MD of Mercedes Benz India, questioned the basis for lower tax revenue to the government.

“Once the duty was put in place, it would take several weeks for the first tax payment to come in. I am wondering what the facts are that led to the assumption that there is really a lack of revenue,“ Folger said. The automotive industry contributes almost 49% of the manufacturing GDP and about 7.1% of the total GDP and employs over 65 lakh people. To be sure, India’s passenger vehicle market registered its highest ever monthly dispatches at 2.98 lakh units in July , thereby accruing higher revenue to exchequer. A dealer told ET that in April, May and June, prospective buyers were in the wait-andwatch mode to understand which way the prices are moving. Now, the talk of higher cess is compounding the problem, said the dealer with a European car maker.


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