The Goods and Services Tax may have led Indian automakers to immediately slash prices across consumer segments, but the Maharashtra government has moved in quickly to absorb a portion of the benefits that potential buyers would have been eyeing. On Monday, the Maharashtra cabinet increased the rate of motor vehicle tax to mop up additional revenues. The cabinet has hiked the rate of tax by 2 percentage points across all two-, three- and four-wheeler segments. This is a second time within a year that the state government has increased the one-time levy collected at the time of the registration of vehicles.
In August 2016, the state had introduced a road safety cess (not exceeding 10 per cent) on the levy. Following Monday’s hike, the motor vehicle tax on two-wheelers and three-wheelers will range from 10 to12 per cent of the sale price depending on the purchase segment. The revised levy will range from 11 to 13 per cent of the price of petrol-run cars, and 13 per cent for diesel cars. For cars that run on compressed natural gas or liquified petroleum gas, the tax will range from 7 to 9 per cent.
The government plans to mop up Rs 762 crore from the tax hike. For 2017-18, the government had earlier estimated a target of Rs 7200 crore from taxes on vehicles. According to sources, the cabinet has taken to the step to cancel some of the losses suffered by the state treasury due to the abolition of octroi and local body tax. While the abolished levies were collected and used by the local bodies, the state government is now required to compensate these local bodies every month for the loss of revenue.
Incidentally, the Cabinet Monday decided to cap the upper limit of the motor vehicle tax to Rs 20 lakh. “This has been done to discourage purchasers from registering their newly purchased vehicles in other states,” said a senior official. With the GST regime decreasing the manufacturing cost of most two-wheeler and four-wheeler segments, leading automakers have slashed retail prices to lure potential buyers.
But sources said the state government’s latest decision will increase the overall tax incidence by 0.2 per cent on an average. With the exception of hybrid models and luxury bikes and cars, the Centre has already levied a 28 per cent tax on vehicle purchases under GST. The Centre has applied an additional 15 per cent cess in the hybrid or luxury segment to raise revenues for compensation to manufacturing states.