Sub-Rs 10 lakh SUVs may escape hike in excise duty

Sports utility vehicles SUVs under Rs 10 lakh may be spared the 3 per cent excise duty hike announced in the Union Budget.

The price cap is being proposed to maintain demand for rural and commercially-focused SUVs such as the Mahindra Bolero,Tata Sumo,Chevrolet Tavera and Force Trax in a slowing economy,and is being considered by the finance ministry on the request of the auto industry and the ministry of heavy industries.

Some urban middle-class SUV choices like the Mahindra Scorpio,Renault Duster petrol and the upcoming Ford EcoSport too may escape the duty hike. In his Budget,finance minister P Chidambaram had increased the excise duty on SUVs from 27 per cent to 30 per cent since they occupy greater road and parking space8230;.

While ruling out any roll-back,the finance ministry had asked the auto industry to figure out a way to separate SUVs used by the middle class from premium models.

Following discussions with the auto industry,the heavy industries ministry is likely to revert to the finance ministry on Friday with a proposal to divide SUVs into two categories. Higher duty will apply to the Rs 10-lakh-and-above category. The ministry may also propose riders including height requirements to classify a vehicle as an SUV,while including measures to exclude sedans from the duty hike.

However,sources said the finance ministry may have reservations with the proposal since manufacturers may start reducing prices to avail of lower duty and make that up through higher volumes.

It is difficult to apply this SUV tax because neither the industry nor the finance ministry is sure of how to define an SUV. The only non-discriminatory way to separate mass products like Mahindra Bolero and the Tata Sumo from premium models is by price. But we have to see if the finance ministry agrees. If they had asked us earlier,we would have given them a formulation, a senior official from the heavy industries ministry said.

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Mass SUVs account for close to 80 per cent of the total utility vehicle UV sales in the country. Between April and January this fiscal,UV sales have grown 57 per cent at 4.51 lakh units,even as car sales in the same period fell almost 2 per cent to 15.56 lakh units.

Though mainly targeted at diesel-engined premium SUVs,the duty hike inadvertently also impacted some petrol sedans such as the Maruti SX4 and the Toyota Corolla. As per the current definition,all vehicles above 170 mm ground clearance,more than four metres in length and with an engine capacity over 1.5 litres attract the 3 per cent excise duty hike. FE