India needs to re-examine the tax structure on automobiles – which stands highest even among partly-developed nations in the world – if the industry is to attract new buyers and grow in a sustained manner, said R C Bhargava, chairman of Maruti Suzuki.
While the industry has grown in strong double-digits this year, demand is coming from the more premium end of the market, indicating stress on affordability at the entry-level, head of the country’s largest carmaker pointed out.
Several policy measures pertaining to enhanced safety and emission norms implemented in the last three years have resulted in a steep increase in vehicle prices. The burden of regulatory changes on small cars is higher than that on bigger vehicles and that is changing the whole market behaviour, Bhargava said on Monday evening.
“People who are buying small cars are not buying small cars in near the same numbers,” he said. “Personally, I think it’s not a good thing, either for the car industry or the country. We need to add new buyers to the market in a steady manner for the auto industry to grow sustainably. The base of ownership of cars must increase every year. Only then, when the whole pyramid becomes a larger one, will it be able to balance itself.”
The skewed growth rates being registered across segments will not warrant a uniform tax rate across smaller and larger vehicles in the Indian market, Bhargava said. “I don’t see it as becoming an inverted pyramid. That the car industry becomes an industry in India where there is hardly any growth in the small segment and all the growth takes place in the higher segments,” he said. “So, that factor has to be kept in mind, the regulatory effect on the car, and that’s one argument for not having a uniform rate of tax on all small and big cars.”
At present, automobiles are taxed at 28% GST with additional cess ranging from 1-22% depending on the type of vehicle. Cars imported as completely built units (CBU) attract customs duty ranging between 60-100% depending on engine size and cost, insurance and freight (CIF) value being less or above $40,000.
Electric vehicles, however, attract a uniform GST rate of 5%, irrespective of the body style. “There’s no differential tax rate there. So, there already that uniform taxation happening,” Bhargava said.
Compared to developed markets like Europe and Japan where per capita income is far higher, Bhargava elaborated taxes on cars in India are much higher.
“Now, somebody needs to think about that. Should cars be charged more than the average rate of taxation? If it is, then we are, in some way, accepting the thing that cars or luxury products should be taxed more than non-luxury products, which is the old socialist way of thinking and taxation,” he said.
Tax on automobiles in Europe stands at about 19%.
Overall, Bhargava said the Indian economy is doing well and is expected to register GDP growth of 7% this year. It is, however, unlikely that the country can clock a similar rate of growth next year due to macroeconomic headwinds in global markets.
India’s economic growth rate could be higher if the manufacturing sector grows fast, he said.
The manufacturing sector here has trailed behind countries such as Germany, South Korea and Japan despite the best efforts of the Narendra Modi-led government at the Centre due to implementation gaps at the ground level, Bhargava said, adding that it is imperative for the automobile industry to grow for manufacturing GDP to increase.
“You can’t grow an automobile industry with 50% taxation,” he said. “Where in the world has an industry like automobiles grown with 50% taxation? But it’s the wisdom of the policymakers and the political leadership.”
State governments also need to come forward to enhance ease of doing business, Bhargava said.
Separately, Maruti Suzuki said it will showcase 16 vehicles including two all-new sports utility vehicles and a concept electric SUV at the Auto Expo next month, continuing its onslaught in a segment where it has been working at increasing its presence the last year. Maruti Suzuki managing director Hisashi Takeuchi said the company will continue to introduce new products to recoup lost market share over the next couple of years.
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Car-industry growth in India has slowed to 3% from 12% in the past twelve years, partly due to poor government policies, Bhargava said. Maruti’s cheapest car costs 339,000 rupees ($4,100). A goods and services tax of 28% applies to most new cars, according to the IndiaFilings website. Just 7.5% of Indian households own a car — lower than in China, where almost half of urban homes and one-quarter of rural households own a car.
Pandey said all complaints were being re-verified by agencies, while two EV makers have been suspended from taking incentives under the scheme after examination of complaints. He did not name the two companies.