Jaitley slaps car infra cess, leaves vehicle companies fuming

Singling out diesel vehicles, in the aftermath of pollution problems in the Capital, Jaitley decided to impose 2.5 per cent cess on diesel vehicles of length not exceeding 4 meter and engine capacity not exceeding 1,500cc, while higher engine capacity and SUVs and bigger sedans were slapped a cess of 4 per cent on the value of the car. These are over an above a cess of 1 per cent on petrol/ LPG/CNG driven vehicles of length not exceeding 4 meter and engine capacity not exceeding 1,200cc. 

Reacting to the proposals, Maruti Suzuki Chairperson RC Bhargava said: “Obviously it will lead to rise in car prices. It came as a surprise for us as we were not expecting such kind of a cess.” Lamenting Jaitley’s announcements, Bhargava said: “For pollution, we have already been asked to get to Euro 6 emission norms by 2020. It involves substantial amount of investment and would also add to the cost of vehicles. In addition, this additional cess, when cars contribute only around 2 per cent of the air pollution, comes as a surprise for us.”

He, however, declined to comment on the quantum of the price hike. According to industry estimates, as a result of the cess the increase in prices could range from Rs 2,500 on entry level small cars such as Maruti Alto or Tata Nano and can go over a lakh of rupees on high-end vehicles which are priced above Rs 30 lakh.

In his Budget speech, the Finance Minister said: “The pollution and traffic situation in Indian cities is a matter of concern. I propose to levy an infrastructure cess of 1 per cent on small petrol, LPG and CNG cars, 2.5 per cent on diesel cars of certain capacity and 4 per cent on other high engine capacity vehicles and SUVs.” He also also proposed “to collect tax at source at the rate of 1 per cent on purchase of luxury cars exceeding value of Rs 10 lakh”. Hyundai Motor India Ltd (HMIL) Senior Vice-President (Marketing and Sales) Rakesh Srivastava said the infrastructure cess has come as a “dampener” for the auto industry.

“The auto industry has been experiencing growth challenges and there was an expectation of a scrappage scheme to remove high emission and low mileage vehicles. The taxation (infra cess) has come as a dampener and will effect demand, creating challenges towards sustainable growth,” he said. When asked by how much the company’s vehicle prices will go up, he said it would range from Rs 3,000 on entry level small car Eon to Rs Rs 80,000 on SUV SantaFe, which are currently priced ranging from Rs 3.20 lakh to Rs 30.79 lakh (ex-showroom Delhi). 

Expressing disappointment, Mahindra Group Chairman Anand Mahindra tweeted: “In summary, despite our disappointment on the tax on cars, I see no reason for the mayhem in the market.”

Mahindra & Mahindra Executive Director Pawan Goenka said that imposing up to 4 per cent cess for passenger vehicles is a concern for auto industry. “However, one has to take it in stride, in view of all the priorities that we have for our economy and we in the industry have to manage it. Would have been good if some of the additional revenue from this cess was used to phase out older vehicles,” he added. Hitting out at the Budget proposals, Audi India Head Joe King said: “Government has not announced any positive initiatives for the industry which contributes so heavily to the manufacturing sector and overall economy.”