Budget 2016 Impact: Why owning a car is going to hurt

[Roshun]

A look at how the proposals in Budget 2016 are going to affect car buyers and owners alike.

If you have been planning on buying a car, you have probably waited too long. The Union Budget 2016 has just made it a lot more expensive to not just buy the car, but also in owning it in the long run. Let’s just pick out the reasons why this budget is totally unfriendly when it comes to owning a car – not a bike or a bus – but a car specifically, even small ones. Large cars and SUVs have taken a bigger hit. Boy, am I glad that I managed to sneak in that SUV just before this budget hit!

The year 2015 saw the highest production of passenger vehicles in India – while road infrastructure did not progress with the same pace. And then there was this whole debate around rising pollution levels, especially in the National Capital Region. So our Finance Minister Arun Jaitley had to slam the brakes somewhere – and that’s what he has attempted with the new infrastructure cess. The logic: The additional money from the cess will go towards building better roads. A chicken and egg situation.

In a nutshell here are the proposals in the budget that impact cars:

• 1% infrastructure cess on petrol, LPG and CNG vehicles below below 4 metres in length.
  This will increase the ex-showroom prices of all cars. For instance, the price of a Maruti Alto base model that is about Rs. 2.50 lakh, will go up marginally by about Rs. 2,500, while that of a Maruti Swift petrol ZXi model will go up by about Rs. 6,500 ex-showroom. Is this a deal breaker, not quite.

• 2.5 % additional cess on sub-4 metre diesel cars with engine not exceeding 1.5 litres.
  This impacts all compact sedans, compact SUVs and diesel hatchbacks from the Mahindra KUV100 to the Ford EcoSport. If you take the price of a Maruti Swift ZDI diesel here, it will now be about Rs. 18,250 more expensive ex-showroom! Deal breaker? May be for some as they may look at a lower variant or some other model.

• 1% additional luxury tax on cars priced above Rs. 10 lakh.
  This is likely to impact buyer decisions based on the ex-showroom price of the car, within variants itself. For instance, a buyer looking at a Ford EcoSport and trying to choose between the 1.5 litre Titanium petrol model (Rs. 9.12 lakh ex-showroom) and the Titanium Plus EcoBoost petrol model (Rs. 10.10 lakh ex-showroom) will find that the Ecoboost model will now cost about Rs. 11,000 more. Wait, there’s more. Both models would anyway attract an additional 1% infrastructure cess, making the Ecoboost model about Rs. 20,000 more expensive than before, while the one below Rs. 10 lakh, would cost about Rs. 9,200 more. There's an interesting twist to this. This is a "tax collected at source", which means this is a tax that a dealer will collect and which you can claim a refund on when you file your taxes. What this does, and this is a pretty smart move by Mr. Jaitley, is to bring all transactions on cars above Rs. 10 lakh into the tax ambit - so those who buy cars with suitcases of cash, will be easy to track.

• 4% infrastructure cess on sedans, MPVs and SUVs with higher capacity engines.
  If you were looking to buy a Mahindra Scorpio S10 4WD model and have held out for so long, you are going to be hit hard. This model used to cost Rs. 13.9 lakh ex-showroom, but after the budget (1% infrastructure cess on luxury cars over Rs 10 lakh and 4% cess on SUVs), the ex-showroom price would be about Rs. 70,000 more expensive – giving it an ex-showroom price tag of about Rs. 14.60 lakh and which will make on-road prices even more expensive. A Ford Endeavour 3.2 4x4 Titanium, which recently launched at a sticker price of Rs. 28.15 lakh, would now cost a whopping Rs. 1.41 lakh more ex-showroom! Deal breaker? Perhaps.

Service Tax + Swatch Bharat Cess + Krishi Kalyan Cess
That’s not all. There’s a Swach Bharat Tax and the Krishi Kalyan Cess of 0.5 % each which is in addition to service tax of 14% on all services. So that makes it 15% service tax in all. Which means, any billed service that you undertake – like when you take your car for service, every billing of Rs. 1,000 will have Rs. 150 more added to it.

Some other significant proposals in the budget that affect the auto industry:
* An end to the permit raj. Private players can now operate more public transport options - inter city and intra-city buses, which should hopefully solve the public transport issues.
* No change in tax structure for two-wheelers. So if you were planning to buy a bike, go ahead. Don't sweat it.
* A road map for GST which should bring about price parity for cars and bikes across different states.
* A hike in HRA exemption for those paying rent from Rs. 24,000 to Rs. 60,000 which should give you a little more disposable income - just in case you want to spend on your car or bike!

The only other silver lining, is that if you are driving a Mahindra e20, there is no change in prices as the subsidy for electric and hybrid vehicles has been extended beyond April. And you are not impacted by the fluctuation in fuel prices. So what's your take on Union Budget 2016? How has it affected your life? Tell us. My take: It's not a friendly budget for the middle class. Definitely not car friendly, but it does have provisions to improve public transport and life for the underprivileged.

[konarktyagi]

More tax= expensive cars = car sales go down = government makes less tax = infrastructure still remains the same !

[themallustig]

With the ever increasing number of cars on road (2015-16 seeing record passenger vehicle production), Jaitley had no choice i guess. But this is unlikely to bring that number down! Majority of the cars sold in India anyway come under the 1% bracket, and this hike hardly makes a difference. The potential big car owners might just have to suck it up. If somebody can pay 30 lakhs for a vehicle, he/she might as well pay a lakh extra (pardon my left-leaning opinions). What is worrying me is the ever-increasing service tax rates, this causes more damage on a day to day basis.

Hopefully the money mobilized from this, is actually channelized in providing better infrastructure. Being India, i doubt that!

[themallustig]

97,000 crores, the total allocation on roads proposed for 2016-17. Is that enough? Just the stalled projects, of which 85% is claimed to be put on track by the current government only requires an outlay of 1 lakh crore this financial year. Plus the fuel prices, why haven't the government passed on the benefits to the common man? Crude oil prices have dropped a third! And how much have our fuel prices come down to!

[CorsaVeloce]

More tax= expensive cars = car sales go down = government makes less tax = infrastructure still remains the same !

You wish it was that simple.

To be honest, as unhappy as I am about the increase in Taxes, I understand where it comes from. Being an Economics student, it is imperative to understand these measures are part of a long-term plan, effects of which will only be visible after 5 years. If you think about it, the increase in government spending over the last couple of years has been fueled by such measures. And by infrastructure, it does not only mean roads. It encompasses a broader picture and includes places which have greatly benefited from such revenue, but are not visited or discussed by us.

[CorsaVeloce]

97,000 crores is the total allocation on roads proposed for 2016-17. Is that enough? Just the stalled projects, of which 85% is claimed to be put on track by the current government only requires an outlay of 1 lakh crore this financial year. Plus the fuel prices, why haven't the government passed on the benefits to the common man? Crude oil prices have dropped a third! And how much have our fuel prices dropped!

The amount that is allocated for roads include ALL roads in India - from the single mountain passes in Leh to the Coast road in Port Blair. Hence, it is almost impossible to come to a generic number for the cost of developing them all.
And as far as fuel prices go, our government has to be bad guy and take measures to bring down our fiscal deficit. Over the last decades, Indians have enjoyed subsidy on Diesel and on Petrol (until 2012), hence they have to now pass the incidence of this spending to the consumer. Also, the low prices are helping the Finance Ministry gain the value of the rupee that they are losing given the fluid exchange rates. We should actually be happy that the government is creating this 'cushion' for us, so that we don't have to bear the brunt of the crashing rupee, for this commodity.

[Roshun]

As expected, reactions from the automotive industry are laced with disappointment for the sector, although everyone does laud the focus on infrastructure and development as a whole. Before the budget, there was some heavy lobbying from the auto sector - to come up with a scrapping policy for old vehicles, which would incentivise phasing out polluting vehicles and push the sales of new ones. Yet, nothing has really happened on those fronts.

Here is a list of quotes - reactions from key people in the automotive industry:

"We complement the Government for its vision of a strong economy built through sustained investment in rural growth and infrastructure development. The budget, however, lacks a roadmap for the automotive sector, which has for long continued to be an engine of India's economic growth. The high level of discounting in the domestic market today indicates weak consumer demand. Instead of introducing policies, such as excise duty rationalization, or vehicle modernization, the budget has levied additional taxes that will be further detrimental to sales and growth prospects for the industry.”
- Nigel Harris, managing director and president, Ford India

“Development of the agrarian sector emerged as the key priority in this year’s budget, which is positive for the Indian economy. The budgetportrays a steady fiscal picture with considerable spending on infrastructure and rural development, which is laudable. However, taxing the luxury cars will be deterrent for the growth of the industry. We expected some reforms in the duty structure, which could have infused growth in the sector and would have provided additional employment. The rationalization of the duty structure would have also created a level playing field for all brands. Overall, we applaud the infrastructural spending and the focus on building more roads and highways, which will have a long-term positive effect on the auto industry. But in the short to mid-term, we missed an opportunity to drive growth in the sector, which could have further benefitted the long-term prospects of the auto industry.”
- Roland Folger, Managing Director & CEO, Mercedes-Benz India

“The Budget places strong emphasis on agriculture, rural economy, infrastructure and social sector. This is what I was hoping for. The resurgence and thrust on the PPP in infrastructure is most welcome. I also appreciate laying down some very clear goal posts on farm income and on village electrification. Perhaps more could have been done for financial sector and taxation, though staying with the FRBM target was an unexpected bold move and perhaps does put some spending constraints on the Government.

On the face of it, imposing upto 4% Cess for Passenger vehicles is a concern for auto industry. However, one has to take it in stride, in view of all the priorities that we have for our economy and we in the industry have to manage it. Would have been good if some of the additional revenue from this cess was used to phase out older vehicles.”
- Dr. Pawan Goenka, Executive Director, M&M Ltd

“This budget paves way for equitable growth through skill development and job creation which in turn would lead to an exponential increase in demand for goods and services in the economy. The government has proposed commendable measures to remove the economic inequities by giving the poor a higher budgetary provision while taxing the rich. The government has also moved ahead with Make in India campaign and promised easing of custom and excise duties to boost manufacturing in the country. Tax structure of small companies has been made favourable while large infrastructure companies can raise funds by issuing infrastructure bonds. Overall, this is a good budget. The focus now turns to what happens to GST”
– Mr. Nishant Arya, Executive Director of JBM Group

"The government has allocated a whopping 97,000 crore towards road infrastructure with nearly 85% of held up projects coming back on track. This will definitely aid the automotive and transport sector and help people get better road infrastructure. Overall, the common man is greatly supported through multiple initiatives introduced in this budget.
However, the concerns of the auto industry such as lower import duty and implementation of GST have been left unaddressed. Additional taxation on luxury vehicles is likely to have an adverse impact on the premium automobile sector which contributes so heavily to the manufacturing sector and economy at large. We hope to see more discussions over the same in future.”
- Vimal Sumbly, managing director, Triumph Motorcycles India

"We expected the budget to give us long term clarity on NEMMP so that the manufacturer can plan business accordingly. There is no mention of Electric vehicle in the budget except the continuation of concession import duty that too only for one year. This has left all the manufacturers in the dilemma on the government plan on promoting Green Technology."
- Sohinder Gill, CEO Hero Electric

[themallustig]

CorsaVeloce Again, If 1 lakh crore needs to be spend on stalled projects alone this year. Then what about future expansion and maintenance for this coming fiscal year? ( and i am not looking for a figure!)


You have any idea how much a litre of Petrol/Diesel cost out of the refinery? The different taxes levied exceedes the total cost of a litre when out of the refinery in India! Let me break it down to you by quoting this November 2015 ET article.

"Based on average cost of gasoline and foreign exchange rate during the second half of October 2015, it costs Rs 24.75 to produce a litre of petrol at refineries, industry officials said. After adding company margin and other costs, the price charged to a petrol pump dealer is Rs 27.24 per litre. On this price is added Rs 19.06 of excise duty that the Centre collects and a dealer commission of Rs 2.26 per litre. VAT or sales tax makes up for Rs 12.14 in the price of Rs 60.70 per litre in Delhi. Similarly, a litre of diesel at the petrol pump costs Rs 45.93 but its cost for a refinery is just Rs 24.86. After adding margin, oil companies transfer it to retail petrol pumps for Rs 27.05, officials said.
To this is added an excise duty of Rs 10.66 per litre and a dealer commission of Rs 1.43 a litre. VAT in Delhi adds another Rs 6.79 to take the retail selling price to Rs 45.93.The government had from November 7 raised excise duty on petrol by Rs 1.60 per litre and on diesel by 40 paise. The oil companies did not pass on this duty hike to consumers and absorbed all of it at the cost of their margin. The government had collected Rs 99,184 crore in excise collections from the petroleum sector in 2014-15. This was Rs 33,042 crore in the first quarter of current fiscal".

Nearly 1 lakh crores in a year. I get the your logic if the government was still giving out fuel subsidies (except kerosene for BPL families). To manage fiscal deficit the government can't do daylight robbery. Lower fuel prices, will help lower inflation also.

[Arjun]

I guess most of the manufacturers will start making Mild Hybrids in order to reduce the prices and get the subsidy. This would be easier to implement for luxury cars and the price difference would be quite big.
Maruti already has SHVS, which I believe they would be implementing in other cars in their line up. Mahindra also would try to get subsidy for their micro hybrid cars.
In a way, this would push people to opt for hybrid cars especially in the SUV or the luxury segment.

[Roshun]

I guess most of the manufacturers will start making Mild Hybrids in order to reduce the prices and get the subsidy. This would be easier to implement for luxury cars and the price difference would be quite big.
Maruti already has SHVS, which I believe they would be implementing in other cars in their line up. Mahindra also would try to get subsidy for their micro hybrid cars.
In a way, this would push people to opt for hybrid cars especially in the SUV or the luxury segment.

I wish there were stronger incentives for genuine hybrids in this budget. Instead there has only been an extension of the earlier FAME scheme. Mahindra's "micro" hybrid is not a hybrid in any sense of the word. A hybrid would be one that is able to run on alternate energy sources - in this case electricity in combination with petrol or diesel. Mahindra's "micro-hybrid" is just a start-stop system which doesn't deserve sops for hybrids. Mahindra isn't claiming any either. On the other hand, Maruti has somehow managed to arm twist the govt into believing that its SHVS system (Suzuki Hybrid Vehicle System) is actually a hybrid. Granted it's a level more advanced than Mahindra's start-stop "micro-hybrid" system, but again it has no way of powering the car on its own. What it does is to "assist" the engine by giving it a slight boost using electric power through the starter-generator system and also performs the same start-stop function as Mahindra's micro-hybrid system. A bunch of cars already carry this start-stop system including most of the BMWs, Volvos and Mercs. If Maruti can claim the Ciaz is a hybrid, all the others should also line up for the same tag!

The only genuine hybrids right now are the Toyota Camry and Prius, as well as the upcoming Accord, BMW i8 and 760 - cars which are capable of driving on electric power alone for a small distance.

[Jijo_Malayil]

Honda has hiked prices for all their offerings in India. Take a look at how much of a difference did the Budget 2016 make?