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In Gujarat, luxury car owners dodge tax sleuths

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Register cars in other states including Maharashtra and Haryana; government losing Rs 5-6 crore every month.

Spending a few crores on a luxury car may not exactly bore a hole in the pocket, but paying a road tax on that vehicle can be slightly taxing for those driving an Audi, BMW, Mercedes or a Nissan in Ahmedabad. To dodge the tax sleuths, most luxury car owners are driving with number plates of Chandigarh, Maharashtra and Haryana

The Gujarat government is said to be losing anything between Rs 5 and Rs 6 crore per month on road tax within Gujarat.

The state transport department has already cracked down on 200-odd vehicles in the last two months and has collected close to taxes worth Rs 20 crore from the owners, said J P Gupta, state transport commissioner.

Admitting the state government was losing taxes due to the out-of-state vehicle registration, Gupta said, "The tax structure in Gujarat could also be changed. It is indeed under consideration. But, meanwhile, we are in talks with the Centre to develop a more uniform tax structure across other states as well. Places like Chandigarh have very low tax rates."

Overhauling the tax regime in the state, however, seems to be a far cry, as bringing down tax rates on luxury vehicles is unlikely to go down too well with the opposition party. An erstwhile dealer of Mercedes cars in Ahmedabad points out that premium car dealers have been approaching the state government seeking a revision in tax rates for a while now.

"While the state government does not wish to lose revenue to other states, it is wary of reducing tax on luxury apprehending political opposition," he said requesting anonymity.

Gujarat imposes 12.5 per cent value-added tax (VAT) on all vehicles, together with a 2.5 per cent surcharge in lieu of octroi. Adding to this, the regional transport office (RTO) charges road tax at the rate of 12 per cent of the price of the vehicle for completely built units cars that are registered in the name of individuals, and 24 per cent when registered in the name of any company. The RTO tax, however, is lower in case of completely knocked down units at the rate of six per cent and 12 per cent, respectively. This is way higher than some of the nearby states like Haryana, which charges eight per cent road tax on vehicles above Rs 20 lakh and Punjab, which charges two per cent road tax on the cost of the vehicle. Even neighbouring state Maharashtra charges 20 per cent road tax for imported or CBU vehicles.

Chandigarh, however, is now considering to revise the tax rates on vehicles by introducing three tax slabs, Gupta said.

Guruprasad Mohapatra, commissioner of commercial tax for Gujarat, admits that since some of the neighbouring states charge fixed road tax, irrespective of the value of the vehicle, buyers take advantage. He, however, added that on the whole, the state government's collections from automobiles have increased by 55.5 per cent in 2010-11 over last financial year. The state tax department collected taxes worth Rs 2,301.5 crore from all automobiles comprising passenger cars, commercial vehicles as well as two-wheelers, as against Rs 1,480 crore in 2009-10.

Sources in the state tax department point out that while this is an old ploy to evade taxes, the situation has assumed significance now due to sheer volumes.

Gujarat is one of the fastest growing states in terms of luxury car sales. Close to 100 premium cars are sold each month in Ahmedabad and its outskirts alone.

"Most of these cars are priced between Rs 20 lakh and Rs 80 lakh. Some of the imported vehicles also cost in the range of a few crores. With a 24 per cent RTO tax, one has to shell out Rs 24 lakh as tax for a Rs 1 crore vehicle. This is a huge deterrent to sale of luxury vehicles in the state in the long run and will affect our business,” said Samir Mistry, dealer of Audi in Ahmedabad.

Another luxury car dealer said, "Buyers are now choosing to register their cars with a Chandigarh or Haryana address. While local dealers are the ones who are delivering the cars, and the sale gets accounted in their balance sheets, technically the car belongs to someone with an out-of-state address."

Tax officials feel that most of these are dummy addresses, and had cracked down on some city-based dealers recently to get to the bottom of the issue.

As the tussle between tax officials and luxury car buyers continue, some have decided to drag the RTO to court. In a case of possible road transport tax evasion, a bench of the Gujarat High Court had released a Rs 77 lakh Porsche in February, saying that Section 46 of the Motor Vehicles Act provides that once the vehicle is registered in one state it need not to be registered in another one.

The RTO had seized the vehicle owned by Liverpool Retail India Ltd as it was being used in Ahmedabad, but was registered in Chandigarh.

The high court division bench had ruled that Section 47 of the Motor Vehicles Act provides that when the vehicle is registered in one state and kept in another state for a period exceeding 12 months, the owner of the vehicle shall apply to the registering authority of that state for assignment of new registration.

Till such a situation arose, the vehicle cannot be seized on grounds of tax evasion.

While dealers are banking on the recent judgement, they do admit that the tax structure needs to be overhauled soon to ensure a healthy growth rate for luxury cars in the state.