Union Budget 2016-17: Auto industry says additional taxes deterrent to growth

The auto industry today expressed concern over Finance Minister Arun Jaitley’s proposal to levy further taxes on cars with the apex auto body, Society of Indian Automobile Manufacturers (SIAM), saying the move would hurt the industry.

“We believe the government’s decision to levy additional taxes would result in the rise of prices across categories of passenger vehicles and would hurt the industry. With the government’s focus being rationalisation and simplification of taxes, introduction of new taxes on vehicles will only dampen the spirit of the auto sector,” Vinod Dasari, president, Society of Indian Automobile Manufacturers (SIAM) said.

In a move to reduce air pollution and reduce vehicular traffic, the government on Monday announced additional taxes such as 1 percent infrastructure cess on small petrol, LPG, CNG cars with engine capacity not exceeding 1,200cc, 2.5 percent on diesel cars with engine capacity of less than 1,500cc and 4 percent on vehicles and SUVs longer than four metres and with engine capacity higher than 1.5 litres. An additional 1 percent tax is also to be levied on the purchase of cars exceeding value of Rs 10 lakh.

Roland Folger, managing director & CEO, Mercedes-Benz India, said tax on luxury cars will be a deterrent for the growth of the industry. “In the short to mid-term, we missed an opportunity to drive growth in the sector, which could have further benefitted the long-term prospects of the auto industry,” he said.

“We expected some reforms in the duty structure, which could have infused growth in the sector and would have provided additional employment. The rationalisation of the duty structure would have also created a level playing field for all brands,” Folger said, adding that significant spending on infrastructure and rural development, however, was laudable.

The government failed to address the automobile industry’s demand for a reduction in excise duty, which further left most automakers disappointed.

“The budget lacks a roadmap for the automotive sector, which has for long continued to be an engine of India's economic growth. The high level of discounting in the domestic market today indicates weak consumer demand,” Nigel Harris, president and managing director, Ford India said, adding that the additional taxes are likely to impinge on sales and industry growth prospects.

Other industry members also expressed disappointment over lack of further measures to promote alternative fuel technology. "We would have expected some measures to promote alternate fuel technologies which would have helped the environment as well. We would encourage the government not to just think based on size of the vehicle which has no relation to the technology," according to Shekar Viswanathan, vice chairman, Toyota Kirloskar Motor.

More on the Union Budget 2016-17

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