Since 2006, the Union government has brought down the excise duty on small cars from 16 per cent to 10 per cent, though it was raised by 2 per cent in the budget 2010. But various charges including sales tax, road tax, entry tax, registration charges and hypothecation fees by state governments have countered the benefits of excise relaxation and increased the prices of small cars by up to 20,000.
So much so that every time the government cuts excise duties, state governments hike road tax or registration tax. Also, some of the states demand that the buyer pay the registration fee as a lifetime tax upfront.
Carmakers are expecting that the goods and service tax proposed by the government will put an end to tax anomalies across states. . “Industry prefers uniformity in state taxes,” said Society of Indian Automobile Manufacturers (SIAM) president Pawan Goenka.
“There is a huge difference in the local taxes charged by various states on automobiles,” he said, adding that some states charge a lifetime fee while others ask for an annual fee.
In some of the states, while sales tax has risen to 15% from 12.5%, registration fees have gone up to nearly 7-8% from 4%. Car manufacturers and buyers are totally against charges such as entry tax and hypothecation fees. Even the road tax varies across different states and Tamil Nadu, at around 17 per cent, is well ahead of all the other states.
The goods and service tax was likely to be rolled out from this April but differences between the government and states have delayed its rollout. Carmakers, however, are keeping their fingers crossed in the hopes of getting rid of the disastrous effects of variable local taxes.
Uttar Pradesh charges registration fees depending on the curb weight of vehicles, which is spread across three slabs including less than 1,000 kg, 1,000-5,000 kg and over 5,000 kg, attracting fees of 5%, 6% and 7%, respectively.
SIAM has been persuading the government to remove the arbitrary tax slabs introduced by the state governments. But the Union government is reluctant to do so, fearing that the state governments would raise a huge hue and cry about their autonomy.