Car makers divided on taxation under GST regime

Car makers, who often stand united on industry issues, are split on whether the proposed goods and services tax (GST) should levy a differential tax structure or bring a uniform rate. Currently, passenger vehicles attract four slabs of excise duty, with small cars paying the lowest tax. The GST regime, being worked out by the Centre, is expected to subsume all taxes that get levied at the Centre (excise duty) and state levels (sales, road and registration tax).  

Companies like Maruti Suzuki and Hyundai, which have a large exposure in the small car segment, want GST to retain a dual structure. Companies like Toyota, Honda, Ford, etc, who get their larger sales from sedans, are batting for a single tax regime. Some like General Motors (GM) want the government to take a call.

“The government instituted a well-thought out policy of differential taxation on big and small cars 10 years ago and it has worked well. India was nowhere on the global car manufacturing map. This policy has enabled India to become the sixth largest car manufacturer. Smaller cars consume less fuel and pollute less. We don’t see any demerit in continuing with this. Almost 80 per cent of the car production of the world happens in a differential taxation regime,” said a Maruti Suzuki spokesperson.

A small car attracts 12.5 per cent excise duty. This segment should have a length of less than four metres and an engine capacity of less than 1,200 cc for petrol or less than 1,500 cc if a diesel car. Maruti’s Alto and WagonR and Hyundai’s i10 are small cars. Interestingly, two-wheelers, three-wheelers, trucks and buses enjoy the same excise duty.

“We don’t want a hostile rate where small cars attract much lower tax to bigger cars. We want one rate. Some players within the industry want two. If the government does that, it will favour one set of players. We will voice our objections,” said Shekar Viswanathan, vice-chairman and whole-time director at Toyota Kirloskar. Toyota, whose Etios Cross and Etios Liva are small cars, said the company would have demanded one rate even if it had a larger presence.

Jnaneswar Sen, senior vice president (marketing & sales) at Honda Cars India said the uniform taxation policy is one of the most awaited policies which will help business grow.

At the next segment of vehicles, excise rate almost doubled to 24 per cent. This segment is defined by a length of over four metre but an engine capacity similar to small car. Toyota’s Etios and Honda City who fall under this segment. The next slab of 27 per cent excise duty is imposed on vehicles over four metre and with a petrol engine of over 1,200 cc or diesel engine of over 1,500cc. Cars like Honda Accord Maruti Ciaz (petrol) fall in this segment. The highest excise of 30 per cent is imposed on SUVs and MUVs. These must have a length of over four metre, engine of over 1,200 cc for petrol or over 1,500 cc for diesel and a ground clearance of over 170 mm.   

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“The uniformity in taxes is crucial to remove complexities that can potentially impede manufacturing growth and curtail consumer spending. GST implementation will greatly enhance India’s credentials as an investor and consumer friendly economy,” said Anurag Mehrotra, executive director (marketing, sales and service) at Ford India.

India imposes a significantly higher tax on cars compared to developed markets like US and Japan and countries like Thailand and Indonesia. “We would be looking forward to a dual tax structure in GST. The dual structure was promoting mobility for the masses, especially for an entry level buyer. The government wants to promote India as a small car hub. These objectives are still relevant”, said Rakesh Srivastava, senior vice-president (sales and marketing), Hyundai India.