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Old 22nd October 2010, 16:21   #16
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I think the heavy taxation on CBU s is not only the result of lobbying by the local companies but a way to increase the participation of local companies thru JVs with world auto majors.

Rationalization of tax regime a dynamic process and would evolve accordingly, and as the situation demands.

Importantly, global economy or not, the government needs to consider all angles than to enable a few privileged to buy the coveted brands at affordable rates.

Not all Indian manufacturers are VFM. One couldnt care less if the manufacturer makes high margins as long as the manufacturer keeps vehicle and maintenance costs low.

Last edited by simplyself : 22nd October 2010 at 16:28.
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Old 22nd October 2010, 16:30   #17
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Originally Posted by tsk1979 View Post
I am not saying do not tax CBUs, all I am saying is the 110% tax is insane. Tax levels should be at par with other industries. Why is the Auto industry getting 106 or 110% tax benefit on imports, when there are many other industries, which face foreign competition, and yet import duties are much lower.
what would you term as a "sane" level of import duty ?

these duties may not be fixed very rationally but broadly are derived from nature of industry, threshold value of goods, cost of setting up local facility etc...

you may be aware of the concept of current a/c deficit etc. just imagine if in a booming ecnomony like India,one reduces such duties, more and more people start importing cars and results in greater forex outflow.

the net effect would be balooning import bill which has to be offset with that much MORE EXPORTs ( and that is not an easy tast when bulk of the export markets are on recession mode )

so net effect ----you are stuck with a bigger deficit..

lets not trivialise the bigger picture in our quest to have a cheaper "phoren car"

Last edited by narayan : 22nd October 2010 at 16:31.
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Old 22nd October 2010, 16:38   #18
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Actually I would recommend tha CBU duty be increased t0 200+ % making the cars even more expensive to the extent of a Merc s class costing 1.7 crs etc. Making CBU imports go down in a big way, even when people can afford it in that segment.

Simultaneously the CKD duty structure should be reduced further (except for Tyres and Batteries) leading to atleast extensive Assembling type of manufacturing happening in india. The next logical step would automatically would be local component sourcing where possible.

105% CBU duty is not necessarily a bad thing, but we need to relook at excise etc. and further rationalization would help, provided the other interests of the state can be maintained.

All Electric and Hybrid cars should be totally exempt from duties for the next 10 years but only if manufactured in India at least in CKD format, with CBU electrics attracting 200+ % duty.

Such innovative duty and tax structures would boost manufacturing in India, but who will bell the cow.
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Old 22nd October 2010, 16:56   #19
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Hmm, opposing points of view here.
I would like to ask them, would they support 100% or 200% duty on other things also. If the logic of "encourage local production" is to be used, then why just to cars. Why not extend this 100-200% duty to other goods also which can be assembled/manufactured locally?

I raised this point because having high duty for cars, while having lower duty for other finished products indicates to protectionism for a certain section of the industry.
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Old 22nd October 2010, 17:36   #20
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If the tarrifs was not there, then Indian auto industry would have never developed. Neither in manufacturing nor in design. The govt has identified auto-industry as a major source of jobs and income.

Without protection we would have not got the mega manufacturing complexes of Maruti and Hyundai nor innovative designs like Nano and Scorpioo.

Many countries have followed this strategy. Also note that some have removed tarriffs after 15-20 years after they were convinced that the home grown companies are fit enough to compete in the open market.
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Old 22nd October 2010, 17:57   #21
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Tariffs were removed after 15-20 years. But in India, is there even a minor push for rationalizing tarriffs once the industry matures(5-10 years from now?)
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Old 22nd October 2010, 17:58   #22
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Any article which is being manufactured in India, and someone wants to import something similar, imports should attract high import duties (because something similar is already available here). Complicated?

Let's consider Fortuner and Captiva. Captiva is a CBU and hence attracts higher import duties. What Govt wants here is to promote a locally manufactured "similar" automobile which has created value in India and not somewhere else (say exporting country of Captiva).

So you want a highest end car (Mercedes AMG or whatever), you don't want a humble C or E manufactured in India, then you pay extra duty. I am not saying AMG is similar to C or E, but they will perfectly meet the need.

And any article which is not being manufactured in India and ads substantial value (hybrids) should attract lower import duties.

So in my opinion, till it doesn't make business sense (volume) to manufacture such cars in India, Govt should reduce duties on such hybrids.
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Old 22nd October 2010, 18:25   #23
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Sorry for back to back post.

Are we not discussing profitability of different set of manufacturers?

Quote:
Are VFM car makers actually making more money on the cars than overpriced imports?
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Old 22nd October 2010, 18:40   #24
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Quote:
Originally Posted by tsk1979 View Post
India, is there even a minor push for rationalizing tarriffs once the industry matures(5-10 years from now?)
I think we should see something in the near future but it will only come with international lobbying.

Already 1.Uncle Sam was able to give 800cc+ motorcycles a break with the Harley-mango treaty.

2.ARAI homologation was waived for cars costing 40K+ in the international market.

Last edited by Mpower : 22nd October 2010 at 18:44.
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Old 22nd October 2010, 18:42   #25
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I'm curious. Can anyone explain why high import taxes are justified for Vehicles costing more than 1 Cr. or 2 Cr? [Other than the rational that those who buy those vehicles can afford to pay tax. That's not a reason, its just rationalizing]
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Old 24th October 2010, 19:52   #26
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Quote:
Originally Posted by genjew View Post
I'm curious. Can anyone explain why high import taxes are justified for Vehicles costing more than 1 Cr. or 2 Cr? [Other than the rational that those who buy those vehicles can afford to pay tax. That's not a reason, its just rationalizing]
They are justified because the purpose, besides encouraging international companies to set up manufacturing units in India, is also to discourage such imports.
To tie in with Narayan's argument

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Originally Posted by narayan View Post
you may be aware of the concept of current a/c deficit etc. just imagine if in a booming ecnomony like India,one reduces such duties, more and more people start importing cars and results in greater forex outflow.

the net effect would be balooning import bill which has to be offset with that much MORE EXPORTs ( and that is not an easy tast when bulk of the export markets are on recession mode )

so net effect ----you are stuck with a bigger deficit..
Too many people importing too many expensive cars leads to greater outflow of cash, leading to a negative Balance of Payments, and leads to a reduction in the value of the Rupee.

That's why we have to keep the high 110% duties, cause if more people start importing, our economy gets hit pretty bad.

Primary reasons for high duties
1) Encourage international co's to set up shop in India, creating jobs in India.
2) Promote export from India (eg. Hyundai and Nissan), resulting in influx of cash.
3) Discourage imports and hence outflow of cash.

As for my opinion on why the Auto industry has such high duties such as 110%.
Automobiles is a HUGE industry (relative)
Large sales volumes + High Prices (average car starts at 3~4 lakh+, total number of cars sold in a month exceeds 100,000).
Making it easier to import automobiles would hurt the economy much more than any other industry would.
Therefore, due to it's critical nature, automobiles is one industry in particular who's import duties cannot be set at par with other industries (30~40%), as it is one of the largest major industries.

Last edited by kadanaJ : 24th October 2010 at 19:56.
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Old 24th October 2010, 21:39   #27
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@kadanaJ thanks for that explanation,makes sense now.
However this is not the most optimal solution.Import duties affect only cars above the 20 lakh bracket because the hatchback-sedan market(which constitutes 90%) has high localization content.
If the import duties were to be reduced it will spur demand in the luxury car segment which is already growing at a scorching rate.Because of the high import duties this segment is not reaching its potential.

So now if the government decides to slash import duties to say 40% i dont think the scenario will be how the government envisages,of the flooding of cheaper imported cars from abroad,causing outflow of money.

I think what will happen is the luxury car segment will grow even faster prompting the car manufacturers to increasing capacity thereby resulting in more investment.Then a time will come when manufacturers will reach volumes which will make them imperative to start local manufacturing which would be more efficient.

But because of such high import duties now,it will take longer time for the indian market and in essence the indian consumer to be affluent enough to afford these cars on a larger scale.

Also the government can circumvent the problem of imports by making it impossible for individuals to import cars and only allow maunfacturers to do so at lower duties.

Last edited by avishar : 24th October 2010 at 21:42.
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Old 25th October 2010, 00:03   #28
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Maruti made a profit after tax of ~8% last year. I don't think it can be called as a Fat profit margin. However, it is still possible that the profit margins in imports are lesser than 8%. The Indian software companies have much fatter profit margins with lesser capital investment.

Off topic, can India really cry foul in WTO when we tax 110% for imported cars ? Also India does not allow FDI in many areas.
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Old 25th October 2010, 01:47   #29
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I was opposed to the point of high import duties for cars but after the beautiful analysis done by bhpians i would say retain these high structure. If you are considered as a viable market then the company should think about setting up an industry here.

For people who suggested that America gets to drive cars for cheaper, the point is that these industries are inside the country for a majority of the company and the number of cars being bought here is higher. Its more of a necessity in this country and cars are of commodity value here.

I just realized one thing:
For Eg: Tomorrow taxes are removed from imports, Company A is selling a car at the same price of maybe a civic and you love the companies car. You buy it paying the said value. Very few people in the country feels the same so your car company has negligible sales and pulls out. You are left to do jugaad with the car and maintain it now that you have paid that value.

If the company would have its facility here then pulling out is hardly an option without going through hardcore litigation and other issues.
So the tax should remain and its justified.

Coming to think of it the company has to protect its shareholders profits and also deliver good cars to the market and thus the high margins of the indian manufacturers. 1 flop product means millions down the drain. So basically if they reduced the margins and they launch a product which is a failure then the company could be doomed. Think like a person handling the company. Would you want that to happen? Coz i dont

PS: Mercedes Benz: Its high time you reduced the price of your cars to realistic values rather than thinking whatever pieces you are putting behind the 3 pointed star will sell. You could get higher sales i believe if the price was reduced!

The difference between the Toyota Corolla and Camry in the US is $4000
Corlla is $15000 and Camry is $19000 odd.
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Old 25th October 2010, 11:40   #30
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Quote:
Originally Posted by avishar View Post
So now if the government decides to slash import duties to say 40% i dont think the scenario will be how the government envisages,of the flooding of cheaper imported cars from abroad,causing outflow of money.

.

the POINT IS
1) how do you arrive at that lower duty level to "spur" demand in the luxury market
2) Do you want to "spur" demand in the first place
3) whether this is PRIORITY for a GOVT to review the POLICY IMPORT DUTY ON LUXURY CARS at this point in time
mind you - there is a LOT OF work to be done for such policy revisions.


lastly, imagine the Political back lash of such a move...when the Govt is under attack for so many bad policies which need a lot of fixing to be done with , taking such a pro rich policy decision does not make sense at all.

Last edited by tsk1979 : 25th October 2010 at 11:44.
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