[AutoNoob]

I read an excellent article (2 part series) on Autopunditz. It gives detailed insight on taxation of automobiles in India. This study is based on estimated data and economic theory to illustrate tax rationalization impact. It explains the earning share of Automobile OEMs and Government; and how these earnings will fluctuate if tax in higher segments is reduced. Also, it lays out the scenario for taxation of alternate powertrain vehicles.

The article is written by Rohan Rishi (emailrohanrishi@gmail.com). Due credits to him.


Passenger Cars Taxation Structure in India – A Study (Part 1)
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Conclusion :

Best way is to weave the tax system around the primary objective of controlling pollution and reducing dependence on imported crude oil. Thus, tax structure should have parameters like emission level, power efficiency, rather than engine size or drivetrain technology, and at the same time, tax system should remain progressive as well.

A progressive tax is a tax that imposes a lower tax rate on low-income earners compared to those with a higher income, making it based on the taxpayer’s ability to pay. That means it takes a larger percentage from high-income earners than it does from low-income individuals.

Below is one such plausible and pragmatic tax formulae, taking into account all the factors, with an upper ceiling, say – 50%. GST base rate could be adjusted (5% or 12%) to maintain the affordability of cars among masses.

If taxation system remains technology agnostic, then, fully-hybrid and electric vehicles (Battery EV or Hydrogen EV) shall redeem themselves on their merit.

How to make the current tax system progressive? (Part 2)
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So, imagine if price gap reduces, customer will switch to bigger car for a better value proposition, and may yield far better revenue for Government. In worse case also, Government will largely remain revenue neutral with the move.

Dear Mods : I understand that giving links to other forums is not allowed, but these articles are really informative, so I am sharing for everyone's learning.

[blackwasp]

Thanks for sharing this!

Some highlights from the report.

Without much substantiation in budget, 4m length rule sounds more whimsical than logical. It needs to be carefully examined by policy maker for any future tax reform.

The sub 4m rule was made for promoting local production for small cars. However, today there is a glaring omission between this category and other cars. While we are progressing to BS 6 fuel norms, there has been no update on change in tax based on fuel efficiency / CO2 based regulation.

Engine size cannot be considered as proxy for determining fuel efficiency or CO2 emission. Rather it all depends on host of many factors, mainly engine characteristic and how well it is engineered. If real objective of Government is to control pollution and reduce consumption of imported crude oil, then real world fuel efficiency and emission level should be considered as parameters for tax slab rather than just engine size.

100% agree. One of the reasons for not having any decent hybrid cars in India. I think they are the future for us atleast and especially post GST norms (Camry price hike), the government has made a wrong decision. Instead of promoting such vehicles, manufactures will no longer be even thinking about getting such cars here.

Strange thing is, irrespective of value of the car, beyond 4m length, effective tax slab is not progressive in nature. For illustration, we chose the 2018 best-selling sedan’s petrol top-end models from different segments. Point is, 59 Lakhs ₹ (Ex-Showroom) Mercedes Benz E Class is taxed mere 3% higher than Maruti Ciaz, carrying 11 Lakhs ₹ price tag (Ex-Showroom).

One more glaring disparity in taxes. A Ciaz owner paying just 3% less tax than a Merc owner! Btw, most high end cars are company registered, reducing tax outgo for the owner + depreciation benefits and more. While the 3% lower paying guy is probably just about paying off the EMIs. Ok, a bit of a generalisation here, but you get the gist of things.

[aniyo]

Addiction is a very dangerous thing. Our governments are addicted to power and the easy tax revenue they get from Oil, Alcohol & tobacco and vehicles. The level of control it provides is immense and they will not let that go.

As we see 2 of the above are not part of GST and even in the remote possibility it does come, there will be state level cess.

See the government has no interest in making things better for us or the nation. They live election to election. The business houses fund and will want the laws to be specific to their needs.

Pollution, people etc are least of their concern. We can debate endlessly on how to tax but the basic fact remains, the current taxation system provides them with steady revenue and immense control.
This is the very reason that public transport is not developed in many cities like Delhi, Bangalore, Mumbai Chennai etc. It forces people to own vehicle thereby providing tax revenue.
Public transport is an investment with no major revenue for government. That's why our Karnataka government is after the OLA share and Uber pool. No proper bus system etc.
The cities that have are already chocked and need a major overhaul which will not happen in near term.

Bottom Line: Whichever car maker has funded the government will get the laws tweaked in their favor. I strongly feel the sub-4M rule and 1.2L petrol was pushed by Maruti as they don't have much market on the higher side of the price spectrum and no good engine either