Saturday, 21 September 2013

Car Price And The Government’s Slice

Unless you have been living in a cave for the last decade or so, you know that buying a car in India is an expensive affair. The expense associated with the running our cars is in a league of its own as fuel prices climb faster than a Mustang’s rpm gauge. What’s astounding to know is the actual amount you’re paying the government alone when you buy a car. In the last budget it was announced that luxury imported vehicles, SUVs and motorcycles above the 800cc engine displacement mark would face heavier taxation among others. What most car buyers don’t know is the existing amount paid by them is already serving as a major revenue source for the government.

The tax levied on the ex-showroom price of a small diesel car is 63% while it is 58% for a small petrol car. Enter higher segments and 86% of a diesel sedan’s price is tax alone! The general market vibe was one of more relaxed government involvement, but the reality is that buyers pay more now than they did in the 90’s when the taxation was up to 60% of the base price. The fact that a customer can buy a Mercedes C-Class for the price of a Honda Civic in the middle-east, illustrates just how much money is being directed to the government treasury from the automotive industry.

Central government tax, excise duty, education cess, national calamity contingency duty, road tax, VAT and octroi are seen as mere formalities that one has to pay up for in order to purchase a car. However, when you put them all together the amount paid to the government can be up to 90% of the car’s base price. The government has often defended taxation on vehicles as a tactic to deter private transport, but there is a question that most motorists will ask. Why is that tax money not being used to improve the standards of the roads?

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