India on Monday said it cut taxes on motorcycles, automobiles and locally made cellphones in a step expected to revive demand and boost corporate fortunes – at least temporarily.
The tax cuts, part of the government’s new interim budget, will remain in force until after upcoming national elections due by the end of May. A new government could then rescind them.
Excise taxes on small cars, motorcycles, trucks and buses were lowered to 8% from 12%. The levy on sport-utility vehicles dropped to 24% from 30%, and taxes on mid-sized sedans were also reduced.
Ankush Arora, senior vice president for passenger-vehicle business at Tata Motors Ltd.500570.BY +1.24% said the tax cuts are “a very positive development” and would “certainly help to bring back customers into showrooms.”
Car sales in India have declined significantly as higher interest rates, rising fuel prices and fear of job losses in a slowing economy have combined to discourage consumers.
In January, passenger-vehicle sales were down 9.3%, compared with a year earlier. Sales for 2013 were 7.23% below 2012 sales, helping drag down India’s overall industrial production.
The declines have led some auto makers to pare back manufacturing and cut prices in an effort to find buyers. The tax cuts – on taxes applied when vehicles leave the factory – are also aimed at improving demand.
“The government is trying the get the auto industry out of its negative rate of growth toward a positive territory,” said R. C. Bhargava, chairman of Maruti Suzuki India Ltd, India’s largest car maker by volume.
Still, Mr. Bhargava said, “it remains to be seen whether the new government would take forward the tax cut.” He said some customers may hurry to buy vehicles before a new government takes office.
Wilfried Aulbur, managing partner at Roland Berger Strategy Consultants, cautioned that the tax change alone is unlikely to provide a lasting fix to the auto industry’s woes.
“Consistent policies must help to address the root causes of weak consumer sentiment such as high interest rates, stubbornly high inflation, and increasing fuel prices,” Mr. Aulbur said.
In an effort to dissuade consumers from buying imported mobile phones, the government said it would restructure taxes on handsets to make those produced abroad more costly than locally made models.
Finance Minister P. Chidambaram said that companies would receive favorable tax treatment on handsets made in India on a sliding scale related to the amount of their components made locally.
Finland’s Nokia Corp. said the tax changes wouldn’t benefit it because they don’t apply to handsets such as Nokia’s that made in specified economic zones and sold within the country.
“This will add to costs of entry phones less than 2000 rupees and is likely add to burden on consumers of low end phones,” P. Balaji, a managing director of Nokia India said.
“To encourage domestic production of mobile handsets (which has declined) and reduce the dependence on imports (which have increased), I propose to restructure the excise duties for all categories of mobile handsets,” Mr. Chidambaram said.
Electronics, especially cell phones, are one of the largest parts of India’s import bill, after crude oil and gold. A large import bill has been hurting India’s trade deficit since the past couple of years.
The tax cuts, part of the government’s new interim budget, will remain in force until after upcoming national elections due by the end of May. A new government could then rescind them.
Excise taxes on small cars, motorcycles, trucks and buses were lowered to 8% from 12%. The levy on sport-utility vehicles dropped to 24% from 30%, and taxes on mid-sized sedans were also reduced.
Ankush Arora, senior vice president for passenger-vehicle business at Tata Motors Ltd.500570.BY +1.24% said the tax cuts are “a very positive development” and would “certainly help to bring back customers into showrooms.”
Car sales in India have declined significantly as higher interest rates, rising fuel prices and fear of job losses in a slowing economy have combined to discourage consumers.
In January, passenger-vehicle sales were down 9.3%, compared with a year earlier. Sales for 2013 were 7.23% below 2012 sales, helping drag down India’s overall industrial production.
The declines have led some auto makers to pare back manufacturing and cut prices in an effort to find buyers. The tax cuts – on taxes applied when vehicles leave the factory – are also aimed at improving demand.
“The government is trying the get the auto industry out of its negative rate of growth toward a positive territory,” said R. C. Bhargava, chairman of Maruti Suzuki India Ltd, India’s largest car maker by volume.
Still, Mr. Bhargava said, “it remains to be seen whether the new government would take forward the tax cut.” He said some customers may hurry to buy vehicles before a new government takes office.
Wilfried Aulbur, managing partner at Roland Berger Strategy Consultants, cautioned that the tax change alone is unlikely to provide a lasting fix to the auto industry’s woes.
“Consistent policies must help to address the root causes of weak consumer sentiment such as high interest rates, stubbornly high inflation, and increasing fuel prices,” Mr. Aulbur said.
In an effort to dissuade consumers from buying imported mobile phones, the government said it would restructure taxes on handsets to make those produced abroad more costly than locally made models.
Finance Minister P. Chidambaram said that companies would receive favorable tax treatment on handsets made in India on a sliding scale related to the amount of their components made locally.
Finland’s Nokia Corp. said the tax changes wouldn’t benefit it because they don’t apply to handsets such as Nokia’s that made in specified economic zones and sold within the country.
“This will add to costs of entry phones less than 2000 rupees and is likely add to burden on consumers of low end phones,” P. Balaji, a managing director of Nokia India said.
“To encourage domestic production of mobile handsets (which has declined) and reduce the dependence on imports (which have increased), I propose to restructure the excise duties for all categories of mobile handsets,” Mr. Chidambaram said.
Electronics, especially cell phones, are one of the largest parts of India’s import bill, after crude oil and gold. A large import bill has been hurting India’s trade deficit since the past couple of years.
Source: Auto News in Hindi
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