Mahindra SUV's in tax quandary

Mahindra SUV’s in tax quandary

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QuantoThe recent union budget brought with it higher excise duties in the case of SUVs. This increase of excise from an earlier 27% to 30% was applicable specifically for those SUVs above 4 meters in length, 1500cc engine and those which ground clearance of more than 170mm. SUVs from M&M lineup fall in this category except their Quanto.

Initial analysis has also shown that industry sales of SUVs, prices of which have been increased by 3% due to excise duty hike, have seen a fallen considerably in April 2013 as compared to sales in the previous year. This shows that the added 3% has caused a serious decline in this sector, which till date was considered the fastest growing sector. The restraint will curb revenues generated by the Indian auto industry.

M&M are hence compelled to consider modification of their entire SUV product range so as to align them as per the new specifications so as to fall into the category to take advantage of lower excise duties. The added excise duty is resulting in an uneven playing field. Not only has excise duty increased where SUVs are concerned, but diesel prices have also gone up at much the same time causing adverse impact on sales of diesel SUVs. Currently, the petrol diesel price difference is at jus t26% as compared to 42% a year earlier. Petrol prices dropped by a further Rs 3 last week.

Dr. Pawan Goenka, President, Automotive & Farm Equipment Sectors, Mahindra & Mahindra Ltd. said, “While the tax in itself is a concern, we are perplexed about the criterion and justification of this additional duty. The hike in excise has also resulted in a situation where there is no level playing field between players in the industry as some of the best selling SUV models competing in the same price bracket do not come under the increased duty structure due to the specifications in the new definition of SUVs.” He added, “If the increase in excise duty is to compensate for the diesel subsidies, why haven’t all diesel vehicles been included under the proposed increase? If it is for road congestion, why haven’t all large vehicles been subjected to the same tax hike? If this is a tax on the rich, why not tax all vehicles above a certain price point? ”

He wenht on to say, “Our initial analysis shows that industry sales of SUVs on which excise duty has been increased by 3% have gone down by 14% in April 2013 as compared to last year. This is contrary to the 24% growth witnessed in April 2012. The increase of 3% excise has resulted in the decline, instead of growth in a segment which was the fastest growing till recently. Clearly, this is a big dampener and it has also affected the overall industry sales.” “The auto industry is now faced with a situation where not only has the excise on SUVs increased but diesel prices have also gone up at the same time which could have an impact on sales of diesel SUVs. In fact, the petrol-diesel price differential is currently 26% as compared to 42% a year ago. Of course, we have been saying that diesel price should be freed but this is happening at a time when the excise duty has also gone up. It creates a double whammy.”

On the announcement of Mahindra’s sales volume for April 2013 which reported a flat 1% for passenger cars, Pravin Shah, Chief Executive, Automotive Division, Mahindra & Mahindra Ltd. said, “We are extremely disappointed that the additional 3% excise duty on SUVs has not been reversed in the Finance Bill, which would have brought about some cheer and momentum for SUV makers and provided them with a level playing field. We remain cautiously optimistic of the current situation and do hope that with the much awaited and needed reduction in interest rates announcement by the RBI next week, the auto industry will look up. At Mahindra, we hope to create excitement with the launch of the Verito Vibe and other product variants”.