SUV tax will compel modifying products to meet new norm: M&M

It had said earlier that any additional duties levied by govt will be counterproductive from a revenue generation viewpoint

Faced with higher excise duty on its SUV models, homegrown auto major Mahindra & Mahindra today said it will be compelled to consider modifying its products to align with the new specifications for lower duty.

Mahindra had previously expressed concerns that in the current economic environment, any additional duties levied by the government will be counterproductive from a revenue generation viewpoint, the company said in a statement.

"While the tax in itself is a concern, we are perplexed about the criterion and justification of this additional duty," Mahindra & Mahindra President (Automotive & Farm Equipment Sectors) Pawan Goenka said.

If the increase in excise duty is to compensate for the diesel subsidies, why haven't all diesel vehicles been included under the proposed increase? he asked.

"If it is for road congestion, why haven't all large vehicles been subjected to the same tax hike? If this is a tax on the rich, why not tax all vehicles above a certain price point?," Goenka further said.

On the implications of the higher tax on SUVs, he said the increased excise duty will compel Mahindra to consider modifying their products to align with the new specifications for lower excise duty.

"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," Goenka had stated yesterday.

Under the current definition given 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.

M&M said it had hoped that the representations made by the Minister of Heavy Industries, Chairman Finance Committee, Society of Indian Automotive Manufacturers and other automotive companies would make the government reconsider the additional excise duty on SUVs proposed in the Budget 2013.

The company said the government's decision to impose higher excise duty on SUVs was creating an uneven playing field between companies and is totally changing the competitive scenario.

Initial analysis shows that industry sales of SUVs on which excise duty has been increased by 3% have gone down by 14% in April 2013 as compared to last year, the company said.

M&M further said: "This is contrary to the 24% growth witnessed in April 2012. The increase of 3% excise has resulted in the decline, instead of growth in a segment which was the fastest growing till recently. Clearly, this is a big dampener and it has also affected the overall industry sales."

The auto industry is now faced with a situation where not only has the excise on SUVs increased but diesel prices have also gone up at the same time which could have an impact on sales of diesel SUVs. In fact, the petrol-diesel price differential is currently 26% as compared to 42% a year ago, it added.