 "Tax burden may deter localisation plan: Roland Folger")
Last year, the demand for luxury cars beat the broader sentiment and emerged as a bellweather segment. The segment had been under a slight pressure since the beginning of this year despite a flurry of launches. The four slab of Goods and Services Tax (GST) where luxury items have been singled out will have an adverse effect on car demand. In an e-mail interview, Mercedes-Benz India Managing Director & Chief Executive Officer Roland Folger tells Swaraj Baggonkar why 'Make in India' might prove to be difficult with the onset of GST. Edited excerpts:
Luxury goods have been singled out in the four-tier GST. Your reaction.
The undue taxation of luxury cars in the pretext of ‘luxury goods’ shouldn’t be carried out. Our products are increasingly focused on becoming more environment-friendly and it remains our endeavour to make safer cars on roads. It is a well-known fact that luxury cars introduces advanced technologies and features which later trickles down to mass segment and benefit a larger consumer base. Luxury cars should be encouraged to grow from these perspective. It would be deterrent to the industry’s growth if luxury cars are unduly taxed under the pretext of luxury goods.
What is the current rate of tax on luxury cars?
The current basic excise duty rate varies from 27 per cent to 30 per cent whereas the local value added tax (VAT) rates vary from 12.5 per cent to 15+ per cent.
What impact will it have on demand if additional cess is imposed on these over and above the GST rate?
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Levy of any additional tax (by whatever term it is referred) will defeat the very purpose of introducing the GST, wherein all taxes are supposed to be subsumed into GST rate. If the luxury cars are charged at higher rates, the presumption that GST will bring down prices of goods will not be true in case of luxury cars, and hence the demand may not increase as was anticipated.
Where does India's tax rates on luxury cars currently stand when compared to taxes in other countries and what will it be after the GST rollout?
Today luxury cars bears the basic excise duty rates of 27 per cent to 30 per cent and VAT rates of 12.5 per cent to 15+ per cent, against a consolidated VAT rate of 17 per cent to 25 per cent in Europe.
Will your constant efforts at improving localisation be rendered useless if taxes were to go up?
If there is no tax benefit, there is subsequently no volume increase. As the localisation is linked to the volume of production, it might be affected in future.
Will GST simplify your business transactions?
While it is expected to simplify the tax procedure, it is likely to increase the details/data that need to be generated and maintained.