Higher road tax in 9 states pushes up cost of cars

NEW DELHI|MUMBAI: At a time when high ownership costs and liquidity tightening have put the brakes on automobile sales, as many as nine states — including Punjab, Kerala, Jammu & Kashmir and Bihar — have increased road taxes, raising further the on-road cost of passenger vehicles.


Higher road taxes have increased the on-road price of a car Rs 5,000-57,000 depending on the model and the geography, shows data available with market leader Maruti Suzuki.


In J&K, for instance, higher road tax (at 9%) has raised the on-road price of Maruti Suzuki Alto 800 by Rs 22,900. Coupled with higher input costs because of the implementation of upgraded safety and emission norms and rising insurance expenses, the overall price of the model has gone up by Rs 63,000. For larger models such as the Ciaz, the price increase is as much as Rs 98,000. Alto’s average monthly sales in the state have subsequently fallen by 27%.


Similar price increases have brought down the small car’s sales by 28% in Punjab, 27% in Bihar and 26% in Uttarakhand in the first five months of the fiscal. “If you are increasing the price of a car like Alto by roughly by Rs 45,000-50,000, what do you expect? Sales will drop,” Maruti Suzuki chairman RC Bhargava told ET, adding, “When sales are declining, states kept increasing road taxes by up to 5%. When you combine the higher cost of cars, with lower availability of financing for customers, along with the requirement of the customer to increase the amount of his initial deposit, affordability becomes an issue.”


Overall, passenger vehicle sales in the local market dropped 23.5% to 1,109,930 in the same period as high vehicle prices and sparse credit availability hit demand.


According to auto companies, the extra cost incurred by a customer beyond the ex-showroom price for factors such as insurance, road and registration tax and basic accessories can range from 4-20%, depending on a personal or a corporate buyer and varying from state to state.


Vikas Jain, national sales head for Hyundai Motor, said not only has the on-road price gone up because of road taxes but getting borrowing on this incremental cost along with insurance spike is also getting tough for the prospective buyers. "On one hand, the customer has to make an upfront down payment of 20% as against 10%, but he has (to) also ensure that there is enough liquidity to pay the insurance, road tax and other expenses like on accessories, which have made the conversion of enquiry to sales difficult," said Jain.


Bhargava, however, does not think a simple reduction in GST rates on passenger vehicles will help reduce costs and spur demand. “GST is certainly a major element of what adds to the cost of a car, but it is not the only element. If the government reduces GST, but states add more road tax, and somebody else raises insurance, then some other tax, then it makes no difference to the customer,” he said.


The Maruti chief said the GST issue should be viewed in the context of the overall impact of taxes on automobiles; states need to become more aware of their responsibility to promote manufacturing.


“If GST cut is part of an overall scheme to reduce taxes and the states commit not to increase taxes further, then it makes sense. But if periodically, states increase road tax, then it becomes something like alcohol and cigarettes…that every few years you keep adding,” said Bhargava.