Cars, SUVs to become costlier from January as govt ends excise sop

NEW DELHI: It is almost certain - no further extension to excise duty relief on automobile. Cars and utility vehicles would get costlier in the New Year, as a senior finance ministryofficial said the government would allow interim relief, announced in February and extended once in June, to expired on December 31.

In order to boost the auto sector, the previous UPA government had cut excise duty on cars, SUVs and two-wheelers in the interim Budget.

In the consumer durables sector the excise was reduced to 10% from 12%. Popular models like Maruti Alto and Swift, Hyundai's Elite i20 and the top selling mid-size sedan, Honda City, would become pricier by Rs 50,000 to Rs 1 lakh. On luxury models made by Volkswagen, BMW, Mercedes-Benz and Audi, the increase would be steeper. For a vehicle imported as fully built unit, as is the case with most high-end cars, increase could be as much as Rs 5 lakh.

The government had announced the 4-6% cut in excise duty as an interim measure to help stir up demand against continuous low sales. The industry has seen a feeble recovery since the start of the fiscal year in April, though it was limited to just some top players.

Popular models like Maruti Alto and Swift, Hyundai’s Elite i20 and the top selling mid-size sedan, Honda City, would become pricier by Rs 50,000 to Rs 1 lakh.

ET on December 16 reported of a possible return to higher excise duty rates by the government in the New Year. With no extension to relief, excise duty on cars up to 4 metres in length would go back to 12%, while that on big sedans and SUVs would return to 24% and 30%, respectively. The effective price increase for the buyer, after including other taxes and insurance, would be higher than hike in excise duty which is charged on factory-gate price.

Several carmakers had already also announced price hike from January onwards blaming rising input costs. Maruti Suzuki BSE 0.18 %, Hyundai, Nissan, Renault, Honda and a few others are expected to hike prices. Withdrawal of excise duty sops would make changes much steeper. "The hike in model prices is a company-specific decision. We are feeling the pinch of raw material prices and fluctuating forex rates, forcing us to increase prices from January," said Rakesh Srivastava, who heads marketing and sales at Hyundai Motor India. "Any change in excise would be industry-specific and lead to across-the-board hike."

Other major carmakers are also toeing a similar line. "The hike would be substantial if excise duty concessions are withdrawn. It would impact the industry adversely and the moderate growth trend in the past few months may change," said RS Kalsi, executive director for marketing and sales at country's largest carmaker, Maruti Suzuki. Honda Cars India is planning to increase prices with a bigger margin.

According to analysts tracking the sector, the burden of indirect tax is very high in India.

Meanwhile, industry body Society of Indian Automobile Manufacturers has pitched for continuation of the sops to further aid recovery in the sector.

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