Gujarat's used car market has been hit due to the state budget decision to tax resale of old vehicles. Used car sales in the state are down by around 20-25 per cent in March compared to February after the budget announcement came in, dealers here claimed.
The state budget proposed to levy a tax at the rate of 15 per cent of the original tax paid for the vehicle on the owner deciding to re-sale his car.
"Transfer of ownership cost around Rs 500 per vehicle prior to the decision, of which Rs 100 was the fixed charge by the Regional Transport Office (RTO) and the remaining by approved agents," informed Suresh Vaghnani of Jolly Motors, a used car dealer at Navrangpura, the biggest used-car market of Gujarat. He further explained, "This implies that if the RTO tax on a new vehicle is Rs 50,000, the owner would now have to shell out Rs 7,500 as tax on resale."
City based used car dealers felt that the move will not only impact the prices of used cars, but also affect sales. "March sales are down by 20-25 per cent from February thanks to the move, and transactions are expected to get costlier as now one would have shell out more to transfer the ownership", Vaghnani said. Jainee P Gordhandas, chief executive officer of used car portal BIGgaddi.com felt that "While sales in February have been dull due to year end impact when people delay their buying behaviour in anticipation of car prices to settle down, March sales are down further thanks to the state budget impact." Sales in the corresponding period last year were, in turn, up by 5-8 per cent as compared to February 2009, he added.
Currently, a 2003 make Maruti Zen costs between Rs 1.25 lakh to Rs 1.5 lakh in Gujarat, while an entry level sedan like a 2004 Tata Indigo CS costs between Rs 1.75-1.85 lakh. Prices are down by 15-20 per cent compared to December-January 2009, but they are now set to get spiked due to the additional tax burden.
Rajiv Mathur of Auto Terrace, another used car dealer in the area said that during February-March a dealers' purchases rise as people go for new cars before year-end in anticipation of price rises. New car sales across the country vroomed 31 per cent in February with car makers like Maruti Suzuki and Hyundai Motors recorded their best-ever monthly performance during the month.
The used car market usually borrows the growth impetus from the new car market, but this time on in Gujarat, the sales are down by around 30 per cent. Another likely fall-out of the state government's decision to levy tax on used car sales is, as dealers like Vaghnani pointed out, a reduction in legal transfers between buyers and sellers to evade taxes.
