‘Cut taxes to speed up car sales volume’

Believe it or not, one-third of every rupee, or 33 per cent, that an Indian customer shells out for purchasing a car goes into paying variou...

Believe it or not, one-third of every rupee, or 33 per cent, that an Indian customer shells out for purchasing a car goes into paying various taxes which are the highest in world.

This is much higher than that paid by customers in the US at around 4 per cent, Japan at around 10 per cent, Europe at an average of 15-20 per cent or even Brazil at around 23 per cent. According to an analysis by Crisil, a rationalisation of high taxes on passenger cars could go a long way towards making them more affordable for the buyer and tapping the huge potential offered by India’s large population. Only four people per thousand own a passenger car in India compared to 35 people per thousand in Thailand, 92 in Brazil, 187 in South Korea and over 450 in the developed world.

With low penetration levels, the domestic passenger car industry continues to move in low gear, points out the Crisil study. The passenger car sales volumes continued to slide during the current year with a decline of 4 per cent in the April-July 2002 period over the corresponding previous period. “Clearly, the increased activity in the domestic automobile industry over the last decade in terms of the growing number of models, easy availability of finance, lower interest rates and a growing used car market, had not helped sales volume levels substantially,” it said. This demand sluggishness was in larger part due to high acquisition cost of passenger cars in relation to per capita income levels in India. While it takes around 28 months’ average salary to purchase a car in India, it takes around 16 months in Thailand, eight months in Malaysia and as low as three months in the USA and western Europe.

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In India various taxes such as excise duties and central and state sales taxes have a cascading effect, pushing up the ex-factory price of a car by around 60 per cent. “One of the ways of reducing acquisition costs in India and consequently improving demand was to lower the tax burden on cars,” Crisil said.

At current price levels, the threshold annual household income for purchasing an entry-level car was estimated to be around Rs 2,90,000.