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Old 18th September 2020, 20:20   #1
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Default Government sermons to auto industry = reduce costs; Auto industry to govt = reduce taxes

In this "Tug of War"between the government and the auto industry, sermoning one another, the result can be an ultimate sermon to the buyers from both these bigwigs which could say :-

" increase your budget to buy a car."

Both these bigwigs viz government and the auto industry seem to be unyeilding. Toyota and Maruti have publicly blamed government policies and taxes for the abnormal ex-showroom costs of cars. The total tax component on the cost price are nerve racking. Plus the manufacturers' establishments are taxed by several local, state and central agencies.

The government on its part asks the auto industry to reduce costs. Reduction of royalty payment is also an issue in the sermon, but is an absurd call from the politicians and bureaucrats who do not understand the intricacies of the technology transfer issues. "If we pay peanuts we get monkeys" as the old adage goes.

Also, the government advises the auto industry to achieve greater efficiency levels. We wonder how the government machinery has if ever achieved greater efficiency, which if true, can be a role model for the auto industry.

The government also justifies the GST rates and says many players are used to this regulatory and tax regime since years, so why the grouse now?

Automakers are howling and are down and out with the present sales scenario and hence faults in the tax structures are being pointed out.

Its a logjam and both the government and the auto industry may not yield anytime in the near future. The government wants taxes and the auto industry wants sales and profits.

Its also interesting to note that cars are classified as "sin goods" by the government in the GST document. And since we all at teambhp buy cars we are all "sinners."

The full newsitem on this link:-

https://auto.hindustantimes.com/auto...335918216.html

Last edited by anjan_c2007 : 18th September 2020 at 20:23.
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Old 18th September 2020, 20:37   #2
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Default re: Government sermons to auto industry = reduce costs; Auto industry to govt = reduce taxes

I bought my SUV in 2017 just after the GST launch.
Total paid was 36 lakhs.

Break up:-
29.8 lakhs = Ex. Showroom which includes 9.0 lakhs GST and taxes.
4.50 lakhs = RTO. charges.
0.90 lakhs = Insurance (bargained from 1.4 lakhs).
0.20 = Ex.warranty.
Balance = Accesories.

So practially 9.0 + 4.5 = Total 13.5 lakhs which has gone to the State and Central government by one way or the other.

So for a 36 lakhs car, the government takes away 13.5 lakhs.

If we take out the 13.5 lakhs and the insurance, we are left with 21.5 lakhs, out of which some amount goes to the dealer. So what does the manufacturer earn? And we want sun-roof, ABS, Alloy wheels, air bags, chrome, leather interiors etc.

Sadly that's how the taxation works. Isn't it too high?

Note: The above figures are rounded off for better explanation.

Last edited by ruzbehxyz : 18th September 2020 at 20:44.
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Old 18th September 2020, 20:38   #3
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Default re: Government sermons to auto industry = reduce costs; Auto industry to govt = reduce taxes

After the recent Toyota controversy - I was doing some rough (and could be wrong also) calculations on how much money the government earns as compared to the company when a Toyota Fortuner is sold. Not ruling out the possibility that my math could be utter rubbish (was never good at maths anyways!), it dawned on me that one needs to earn at least 60 lakhs to buy a Fortuner!

62 lakhs gross income before income tax.
After ~30% (ignoring slabs and cess) income tax, you have money in hand for OTR, which is about 46 lakhs.

Road tax and GST on insurance ~ 7.5 lakhs.
Which brings us to ex-showroom price of 36 lakhs.

GST and compensation cess (28% + 22% of factory value) is around 12 lakhs. So that means Toyota finally gets 24 lakhs (which incidentally, is also the price in some other markets, post currency conversion) out of ~60 we need to earn, to build and market the product? Whereas govt gets GST, GST compensation cess, import duty, Road Tax, GST on insurance, various cess etc from the product and income tax from the customer - which all adds upto 36 lakhs?

For a change, I truly hope the math in my post is horribly wrong somewhere!

Last edited by CrAzY dRiVeR : 18th September 2020 at 20:42.
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Old 18th September 2020, 21:38   #4
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Default re: Government sermons to auto industry = reduce costs; Auto industry to govt = reduce taxes

Quote:
Originally Posted by CrAzY dRiVeR View Post
For a change, I truly hope the math in my post is horribly wrong somewhere!
Yes there are few pointers in your calculation, but sadly they are not of the right kind

30% of 62L will be 18.6L - which means with straight 30% tax on gross income the amount in hand is 43.4L
So for a 46L OTR vehicle you need 65.7L Gross income with straight 30% tax

With this money you can buy the Fortuner but then you need more to actually run the Fortuner

However on digging around some more I came across this article.

https://www.cars24.com/blog/how-will...ices-in-india/

From what this article is suggesting the previous taxation policy was equally high if not more than current GST charges, agree that it is little outdated but if we update it with current taxation so it's 48.5% old vs 50% new taxation for Toyota Fortuner.

The sad reality behind all this maths is that -

1. People are earning enough to pay the taxes and buy such vehicles.
2. Government is getting substantial amount of taxes.
3. Manufacturers are making enough money to keep running.
4. Dealers are making enough money to offer discounts.
5. People involved in manufacturing and sales of such vehicles are not earning enough (fun fact - a driver in charge at anonymous MS dealership earns ~10k per month in a Tier || city and depends on the "bakhshish" provided by happy customers to run his house).
6. To keep prices in check cost cutting is happening and it happens at places you cannot usually see.
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Old 18th September 2020, 21:46   #5
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Default re: Government sermons to auto industry = reduce costs; Auto industry to govt = reduce taxes

Govt is negotiating on our behalf in this aspect because there's a massive hit to the economy. We're facing a terrible economic crisis. Consumer purchasing power has come down drastically, & so have car manufacturers input costs.

The country gives land, access to water, swerage, electricity, connectivity etc at subsidised cost along with access to good labour to car companies & component manufacturers.

Only cars sold locally are taxed in the hands of the buyers, whereas cars made here & exported around the world aren't taxed at all.

Also, post-COVID surely car makers would've renegotiated across the board to reduce input costs. If they could rationalise their prices for cars sold within India, robust car sales could be very helpful to the economy as a major boost to all the connected sectors.

Govt needs to cover the fiscal deficit through taxes, failing which the citizens will need to cover it. No free lunches.

Last edited by WorkingGuru : 18th September 2020 at 21:47.
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Old 18th September 2020, 23:57   #6
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Default re: Government sermons to auto industry = reduce costs; Auto industry to govt = reduce taxes

Private vehicle ownership in a socialist country is a middle class priviledge. And since the middle class neither has the masses nor the money power to matter, it is inevitable that they will be squeezed dry to subsidize the other two.

It is sheer futility to complain about this. Instead, anyone who feels repulsed at having to pay 50-60% of a vehicle's value towards taxes and other third parties, can instead register their protest by only buying used vehicles, cheap new ones, etc.

And to anyone who's still complaining about manufacturers being too lazy and inept to crack the Indian market: when nearly 75% share belongs to just two players, neither of which is truly even local, it's a sign of a deeply unhealthy market. Expect more global manufacturers to drop out and slowly get replaced with shoddy players from countries with worse standards.

Quote:
Originally Posted by CrAzY dRiVeR View Post
62 lakhs gross income before income tax.
After ~30% (ignoring slabs and cess) income tax, you have money in hand for OTR, which is about 46 lakhs.
Well to be fair, someone spending that kind of money on a car would purchase it in the name of a company so it can be written of as an expense. So the 30% hit on Income Tax can be avoided. Of course, your point still stands for those who buy vehicles in their individual capacity.
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Old 19th September 2020, 06:58   #7
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Default re: Government sermons to auto industry = reduce costs; Auto industry to govt = reduce taxes

I wrote this three years ago on Facebook.

GST and your income:
A discussion on an automotive forum:
If I were to buy a car whose ex-factory price is Rs. 20 lakhs, what should be my income before paying income tax (assuming I'm a salaried individual, buying the car for personal consumption)?

The Income Tax calculator suggests Rs. 48.50 lakhs, for which Income Tax payable is Rs. 13.20 Lakhs. With my after-tax income of Rs. 35.30 Lakhs, I could buy the car at ex-showroom (20*1.53 = 30.60 Lakhs) and pay Rs. 4.60 lakhs road-tax (15% of ex-showroom in TN).

The break-up of my income:
49% towards Income Tax & GST
9.5% towards Road-Tax
41.2% towards the price of the product I've actually consumed.
-------

In all, you have to be earning above Rs. 4,00,000 (only four lakhs) per month to buy a 20L lakh car. This leaves you with a grand total sum of a holy Rs.10,000 (TEN THOUSAND) to go through the entire yearly domestic budget.

Who are you desperately earning for? Please note you also suffer GST and cess on everything else you spend out of the 10,000. In case you were wondering if the Government is working for you, think again.
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Old 19th September 2020, 08:00   #8
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Default re: Government sermons to auto industry = reduce costs; Auto industry to govt = reduce taxes

Quote:
Originally Posted by darkLightning View Post
....

6. To keep prices in check cost cutting is happening and it happens at places you cannot usually see...
Just to continue with the Fortuner example:
From a full time 4WD that the prev gen Fortuner was, the current gen Fortuner has now deteriorated to a part time 4WD (no need to have central differential) and on top of it only comes with TCS based brake locking differential, all electronic mumbo jumbo, instead of providing proper hardware (mechanical differentials) like the Australian Fortuner.

Last edited by for_cars1 : 19th September 2020 at 08:05.
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Old 19th September 2020, 08:48   #9
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Default re: Government sermons to auto industry = reduce costs; Auto industry to govt = reduce taxes

Automobile sector is probably the biggest cash cow of Government. Collection in the form of GST, Cess, Road tax, Fuel, Tolls... It is money written everywhere.

As per this Source
The Indian automobile industry contributes 49% of manufacturing GDP and 15% of GST revenues, while supporting 37 million direct and indirect jobs.

Those are big numbers. I guess, Government knows the need to support ailing auto sector, but I think it is handicapped because of inefficiency in tax collections in other sectors which makes Auto take all the brunt.

I hope things get sorted out sooner than later. Considering unemployment scene and fresh graduates trickling in every year, the Auto sector could come as a saviour if allowed to flourish.
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Old 19th September 2020, 09:07   #10
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Default re: Government sermons to auto industry = reduce costs; Auto industry to govt = reduce taxes

Around the time Toyota's statement on taxation came out, one of the Big 4 auditing firms published an article on certain teething issues in GST.

I'm sure both of them must have suffered some sort of a hand burn recently. The reason for this is, the compliance has been opposite to the provisions of law and now assessments are being carried out as per the provisions of law. And the result of that can be inferred from two threads on the forum - the Ford Freestyle repair estimate and the Skoda Fabia repair estimate.

Interesting times lie ahead.
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Old 19th September 2020, 10:51   #11
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Default re: Government sermons to auto industry = reduce costs; Auto industry to govt = reduce taxes

A fresh call again from the auto industry to review the high taxes in today's Economic Times

Quote:

Did you know that the topend version of the Honda City (petrol) costs Rs 10 lakh without any taxes? If you are in Delhi, what you finally pay for the car after coughing out GST of 28%, GST cess of 17%, and state road and registration tax of 10% is Rs 16.4 lakh (including freight and dealer charges and insurance) — nearly 65% more than the pre-tax or ex-factory cost. So, total tax payout that a customer needs to shell out is as high as Rs 6 lakh.

And for the humble Alto, the so-called people’s car, a customer has to pay nearly Rs 1.1 lakh in central and state taxes above an on-road price of Rs 4 lakh.

The luxury buyers are battered even more. A customer of Mercedes-Benz E-Class sedan has to shell out as much as Rs 32 lakh in taxes for a car that costs him Rs 74 lakh.

Amid the raging debate over whether auto companies are scooping more from the customers or whether tax rates are exceedingly high, the numbers clearly bring out the fact that affordability gets hit as tax amounts start getting added to the final price.

While the government and the finance ministry insist that it is the industry that needs to reduce costs and “huge” royalty payments, the multiplicity of taxes — GST, cess on GST, state road/registration tax — shows that it is the exchequer that makes the most.
The full newsitem:-

https://timesofindia.indiatimes.com/...w/78198088.cms

Whatever the debate, customer is the ultimate scapegoat. Earlier, mostly the Union Heavy Industries and Finance Ministers spoke about the taxes on automobiles. Now Environment, Transport and Highways, Commerce, Alternate /Non Conventional Energy Resources and more and more are in the league of speakers for the automobile tax debate, without affording any tax rebate.

Last edited by anjan_c2007 : 19th September 2020 at 10:53.
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Old 19th September 2020, 11:29   #12
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Default re: Government sermons to auto industry = reduce costs; Auto industry to govt = reduce taxes

I would not mind such taxation if there was some way to electronically track the money you have paid in taxes. But with poorly designed flyovers launching cars off of them, suspension-linkage-breaking imperfections in the roads, and undulations that force slow moving traffic onto the fast lane, there is a bitter taste left behind when one thinks of the amount they and others are being asked to cough up in the name of taxes. New cars are absurdly priced and for an enthusiast like me, I can only make sense of the used car market these days.
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Old 19th September 2020, 15:45   #13
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Default Re: Government sermons to auto industry = reduce costs; Auto industry to govt = reduce taxes

Govt. sermoning any industry has to be a joke!

Here is my take on just three industries, over which Govt has a monopoly.
(Views and opinions formed after decades of experience as a tax payer residing in Pune.)

Water: Intermittent and unpredictable....even in the monsoon season! Only one way left for the citizens: Make own arrangements (tankers are owned by... hold your breath...local corporators. Doesn't take much intelligence to figure out this scam)

Electricity: Pune is notorious for "repairs", which lead to power cuts. Some years back, they split MSEB into multiple departments, all in the name of improving efficiency. End result? Just created valid scenarios for finger pointing. Only one way left for the citizens: Invest in gensets

Waste management: Overflowing bins are quite a norm. Some years back Pune Municipal Corporation issued a diktat: Everyone should dispose of their own wet garbage. New constructions must have wet garbage disposal facilities, else no completion certificate.

All three scenarios, where the Govt is the sole service provider, result in citizens getting screwed over with the classic case of keeping a dog and barking yourself.

So if the Govt can't manage basic stuff, what gives them the authority to preach on how businesses should conduct their own business?

On behalf of all businesses, I would like to paraphrase John Galt, and tell the Govt: Get out of my way!

Last edited by Sheel : 20th September 2020 at 09:56. Reason: Typo.
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Old 22nd September 2020, 09:28   #14
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Default Re: Government sermons to auto industry = reduce costs; Auto industry to govt = reduce taxes

We should not forget that over the lifetime of the car more than half of the money spent on fuel goes directly to govt. Coffers.
So the tax is even more crazy if one consider overall cost of ownership.
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Old 22nd September 2020, 09:47   #15
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Default Re: Government sermons to auto industry = reduce costs; Auto industry to govt = reduce taxes

Government is an ass, period. It is a self serving, selfish entity which exists and taxes to pay it's current staff and retired employees. Almost 60% of government earnings go in servicing staff salaries so go figure who is working for whom. It's just not the automotive industry which is suffering, the selfish government has its greedy paws into the aviation sector as well. Taxes upon taxes and cess upon tax is the way successive governments loot the common public. It is common knowledge that you pay almost 70% of your gross earnings to the government as tax or cess in one form or the other.

Last edited by AirbusCapt : 22nd September 2020 at 09:52.
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