There is a need to review the existing taxation system to give the desired thrust to the auto retail sector, according to the FICCI.
Levy of VAT at 12.5 per cent in most States on sale through registered dealers of used vehicles is weaning customers away to brokers in the unorganised sector, who do not levy any VAT on used vehicles.
The chamber has, therefore, urged the Government to fix levy of VAT at four per cent.
If imposition of four per cent across States with input credit is not possible, then a levy of one per cent should be charged of resale value of the used vehicles without any input credit.
In a representation to the Ministry of Finance and the Empowered Committee of State Finance Ministers, the chamber has said that depreciation allowance on passenger cars must be increased to 33.33 per cent.
With the product cycle becoming shorter, used vehicle prices have plummeted in recent years, it said.
It takes almost seven years to fully depreciate the vehicle even if depreciation is allowed at 33.33 per cent on written down value, the chamber added.
Service tax should not be levied even on the notional value of free service in cases where there is no reimbursement of the same by the manufacturer to the dealer, because VAT is being paid on the entire sale value, the FICCI said.
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If imposition of four per cent across States with input credit is not possible, then a levy of one per cent should be charged of resale value of the used vehicles without any input credit. 
