Taxes on all motor vehicles in India need to be rationalised: RC Bhargava

The taxes on motor vehicles in India have historically been among the highest in the world and need to be rationalised, Maruti Suzuki Chairman RC Bhargava said at an event on Monday. However, the taxes must not be the same for different car sizes, he noted.

"All taxation on the motor industry should be rationalised. It should be treated like it is in the rest of the world," Bhargava said at the company's Annual Media Interaction in New Delhi.  

On December 18, the Goods and Services Tax (GST) Council announced a single definition for sports utility vehicles (SUVs) across all states. All the cars with engine capacity of over 1500 cc, length exceeding 4000 mm and ground clearance of 170 mm attract a GST of 28 per cent and a 22 per cent cess. It takes the effective tax rate to 50 per cent.

"You can't grow an industry like automobile with 50 per cent taxation," he said.

The taxes, however, should not be the same for different types of cars as the "regulatory burn" on small cars is higher than on bigger cars in India. It is changing the pattern of demand in India with more people buying bigger cars, he added.  

"People who were buying small cars are not buying them anywhere near the same numbers as earlier. It is not good for the auto industry in India. There must be a steady increase in the number of new customers in the car market for its healthy growth," Bhargava told reporters.  

He further said that for faster growth, India needs to focus more on the manufacturing sector. One way to do this was to enter into more Free Trade Agreements (FTAs) which "open up big markets" for India to explore.

"India should aggressively reduce tariffs and go into FTAs," he said.

On December 16, Minister of Commerce and Industry Piyush Goyal told the Rajya Sabha, "...in one year alone, FTA with two developed countries - UAE and Australia will be enforced. With the UAE, the FTA has come into force from May 1 this year, which is a record time, and the FTA with Australia will enter into force from December 29 this year."

"There are 6 Gulf Cooperation Council nations with which FTAs are being discussed. Besides there are talks going on with the European Union, Canada and United Kingdom for FTA agreements," he added.

Another way, according to Bhargava, is to improve India's policy implementational machinery.

"In most cases, there is a big gap between the desired intentions of the policy and its results in India. The machinery must be strengthened," Bhargava said.

Maruti Suzuki's Managing Director and Chief Executive Officer Hisashi Takeuchi said that the company is aiming to restore its market share in the auto market through new models.  In January, it will introduce two new SUV models at the motor show.