Auto excise cut extended for 6 months, import duty to be slashed significantly
Our new government seems to be living up to their business-friendly pitch as they have extended the cut in excise duty levied on the automobile industry for another six months, till December 31, 2014. The previous ruling party had instituted a reduction in excise duty to help the auto industry get back on its feet after high fuel and interest costs coupled with an overall economic slowdown hampered sales significantly. Based on figures from the Society of Indian Automobile Manufacturers (SIAM), car sales dropped by 4.65 per cent from 1,874,055 units during the financial year 2012–13, to 1,786,899 units in 2013–14.
“Extension of excise duty cut to reduce revenue in short term, but benefit economy in the long run,” said Finance Minister Arun Jaitley while announcing the decision at a press briefing.
The move has been lauded in the industry, with veteran industrialist and Chairman Emeritus of Tata Group, Ratan Tata tweeting, “The nation voted for change. We need to stand together to support the new government’s actions to re-build economic growth and prosperity in India.”
The continuation of the excise cut benefits the entire automobile market but luxury cars, in particular, will see a dramatic price drop thanks to a slash in customs duties for imported cars. The luxury car market generally sees cars sold as completely built-up units (CBUs) as the number of cars sold in this segment is quite small and doesn’t warrant local manufacturing. India has Free-Trade Agreements (FTA) with several European countries and with Japan and South Korea. The new government has decreed that imports from these countries will now be taxed less. 2017 will see the Indian government offering lower customs duty, 30 per cent on cars under the proposed trade & investment agreement with the European Union. Japanese and South Korean manufacturers will also avail the same benefit some time after the EU.
As of now, cars which cost more than $40,000 (Rs 22 lakh) face 100 per cent customs levy, and those below pay 60 per cent import duty. The agreement with the EU stipulates that India will allow the import of 2.5 lakh cars at 10 per cent duty between 2017 and 2021. Not only will the Mini Cooper’s price be halved, so will cars like the Fiat 500 Abarth, Mercedes-Benz A-Class and BMW’s 1 Series.
The reduction of customs duty to 30 per cent could mean that the total duty paid, including local levies, would decrease to 80 per cent from the current 174 per cent. So, a car which now costs Rs 70 lakh can be bought for Rs 45 lakh. This translates to a reduction of almost 35 per cent, provided local levies stay at current levels.
Japanese and Korean players won’t benefit from this new tariff as much as the Europeans as most of their line-up are placed in the small and mid-size segment. However, if Toyota brings the Lexus brand or if Nissan brings the Infiniti brand to the country, these luxury segment cars will be able to make to most of the new policy.
The automobile industry can’t be protected indefinitely by putting up walls of astronomical customs duties, and the new policy will quite likely expand the range of choices Indian automobile customers have. It remains to be seen how and if local manufacturing will be affected.
