resr 5paisa Research Team 20th December 2022

Why Maruti chairman is making a case for lower taxes on cars

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Maruti Suzuki, which was once one of the most profitable government-owned companies, has reportedly now blamed its former owner, the sovereign, for levying heavy taxes that it says have put vehicles out of the reach of the country’s masses. 

These comments were made Monday by Maruti’s chairman RC Bhargava, who was once a senior bureaucrat from the elite Indian Administrative Service, but left to head the company that was set up by the Indira Gandhi government more than four decades ago.

What has Bhargava actually said?

“Government policies are such that they treat cars as luxury products that need to be heavily taxed,” Bhargava said at an event in New Delhi. “Car affordability is not at all related to income.” 

Car-industry growth in India has slowed to 3% from 12% in the past twelve years, partly due to poor government policies, Bloomberg reported Bhargava as saying.

Bhargava said the regulatory burden is the highest on small cars, a key segment of the Indian automobile industry. This burden and a uniform tax structure across all segments of vehicles will not augur well for the sector growth, he said.

"People who are buying small cars are not buying small cars in near the same numbers. Personally, I think it's not a good thing, either for the car industry or the country," Bhargava added.

"I don't see that as becoming an inverted pyramid and the car industry becomes an industry where in India there is hardly any growth in the small segment and all the growth takes place in the higher segments. So, that factor has to be kept in mind, the regulatory effect on the car, and that's one argument for not having a uniform rate of tax on all small and big cars," Bhargava asserted.

"You can't grow an automobile industry with 50 per cent taxation. Where in the world has an industry like automobiles grown with 50 per cent taxation, but it's the wisdom of the policymakers and the political leadership," Bhargava noted.

But why are Bhargava’s comments important?

Bhargava’s comments are important as Maruti Suzuki, which is now a private-sector entity, controls a lion’s share of the Indian car market.

How cheap or expensive are Maruti’s cars? How do they compare with imported cars?

Maruti’s cheapest car costs Rs 3.40 lakh and a goods and services tax (GST) of 28% applies to most new cars, according to the IndiaFilings website. Additional cess ranges from 1-22% depending on the type of vehicle. Cars imported as completely built units (CBU) attract customs duty ranging between 60-100%, depending on engine size and cost, insurance and freight (CIF) value being less or above $40,000, according to an Economic Times report.

And how does that compare with the country’s per capita income?

India’s per capita income is about $2,300 a year, compared with $12,500 in China and $69,000 in the US, according to the World Bank. Just 7.5% of Indian households own a car — lower than in China, where almost half of urban homes and one-quarter of rural households own a car.

But is Bhargava the only one saying this?

Not really. Billionaire Elon Musk in 2019 said India’s duties prevented Tesla from importing electric cars to test demand before committing to build a local factory. Toyota halted expansion in India in 2015 due to high tariffs.

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