Withdrawal of the proposed cuts in excise duty: A major set back for prospective customers

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Excise Duty cuts for cars and bikes withdrawn from Jan 1, 2015

The UPA government had announced excise duty cuts in the automobile sales to spur the growth in sales of automobiles. This was supposed to continue till march 2015 but it was withdrawn 3 months prior just to increase the revenues.

As per the reduced excise duty scheme, the SUVs got a 6% cut at duty for 24%, large cars got 3% cut for 24% and mid-sized cars got 4% rebate at 20% whereas the small cars (sub-4 metre products) and two wheelers got a 4% concession at just 8%.

Most of the car makers slashed prices immediately at the announcement of the discounted excise duty rates in February 2014. So if once the rates are rolled back to their original higher values in the new year, we can expect to hear a series of announcements from OEMs, increasing the prices across their model range. It’s to be noted that a few automakers like BMW, Hyundai, Maruti, Renault, etc., have already announced price hikes for 2015 owing to rise in input costs. Not just that, even the motorcycles will also have to face a 4% increase in duties.

The SUV segment stands to lose the most with 6% increase in the excise duty which means that there would be a price hike of around Rs. 55,000 for a product that costs Rs. 9 lakhs. The customers will have to shell out around Rs. 15,000  more for the small car segment.

With numerous cars and motorcycles lined up for launch in early 2015, the excise duty roll back is a huge disappointment  for the people who are on a lookout for new vehicles.

The UPA government, in its interim budget, early this year had planned a cut in the excise duty and this was extended to March 2015 . But now, the new government has decided to withdraw this scheme from this year, ie, January, 2015 onward. This has been done to increase the revenue.

Cars to cost more after withdrawal of Excise Duty cuts

The major reason for introducing this scheme of cuts in excise duty was just to boost the sales of the two wheelers and four wheelers as the auto industry was going through a very rough phase in the year 2014. Though there is a significant growth in sales of two wheelers, the four wheeler segment hasn’t yet seen significant growth in the past few months. Analyzing the sales figures of four wheelers, we realize that, SUVs and sub 4 metre sedans witnessed the maximum growth in the past few months. Interestingly, if the cuts in the excise duty are withdrawn, the SUV segment will face the maximum loss with an increase of 6%. It is being speculated that SIAM will most probably oppose the proposed roll back at least till the desired growth in sales figures is achieved.

The major reason for this is the pressure on the new government to generate more revenues. The withdrawal of the cuts in excise duty would mean a huge increase in the national revenues. But, this can be achieved only at the cost of automobile sector.

If we look at it through a prospective customer’s point of view, then the best time to make a purchase is already over. Considering the cuts proposed by government, the companies like Fiat have been already offering a lot of discounts just to boost their figures on the sales charts.