SUV tax creating uneven playing field: Mahindra

Homegrown auto major Mahindra & Mahindra (M&M) today said the government's decision to impose higher excise duty on SUVs is creating an uneven playing field between companies and is totally changing the competitive scenario.

"This (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," M&M President (Automotive and Farm Equipment Sectors) Pawan Goenka told PTI.

"It totally changes the competitive scenario," he added.

Under the current definition as spelled out by the Finance Ministry for the taxation purpose, SUVs which are above the 4-metre length, 1500cc engine along with 170mm ground clearance attract excise of 30% as against 27% earlier.

Most of the SUV models from M&M, even including its utility vehicle Bolero, fall under the new definition except its Quanto. Maruti Suzuki's multi-purpose vehicle Ertiga and Renault's Duster, the hot sellers in the market, have escaped the higher tax burden.

He expressed disappointment with Finance Minister P Chidambaram for not heeding to requests from the industry and even Heavy Industries and Public Enterprises Minister Praful Patel.

"We still do not know why this was done. Why only the SUVs and within the SUVs also why only select SUVs? If this was a move against the affluent benefiting from subsidised diesel, then why only the SUVs? There are other more expensive diesel cars. No matter how we look at it, we are unable to understand it," Goenka said.

Commenting on the impact of the higher excise, Goenka said: "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 this year compared to last year. This is opposite to the 24% growth witnessed in the same month in 2012."

This increase of 3% excise has resulted in decline, instead of growth in a segment which was the fastest growing till recently. Clearly, this is a big dampener, he said, adding it had also affected the overall industry sales.

The auto industry is now faced with a situation where not only has the excise on SUVs increased, diesel prices have also increased which could have an impact on sales of diesel SUVs.

"Difference in petrol-diesel price now is 26% 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," Goenka said.

Stating that such changes in policy also affect product planning, he said: "We are not sure how to define a product now. We need continuity in policy as we cannot keep changing, although we will do whatever possible to try to get back to 27% excise bracket."