Despite being in the highest tax bracket luxury car sales recorded a growth that beat each of the previous five years
Despite a stellar show last year, breaking previous 5 year records, luxury car makers in India are a worried lot. They fear the high growth could tempt the government to slap additional taxes on the segment in the upcoming Budget.
Luxury cars sales scaled a new peak in 2017 with a growth of 17 percent clocking nearly 39,000 units. The same segment came under fire in 2016 with the ban on big diesel luxury cars marking a fall of 8 percent.
To be sure, most of 2017 growth came a few weeks before implementation of GST (when companies voluntarily cut prices to bring it in accordance with the GST), and immediately thereafter when the cess was still at 15 percent. It is only after the cess was hiked to 25 percent, taking the total tax figure to 53 percent, that segment started feeling the heat.
Dealers resorted to offering huge discounts to clear stocks ranging from Rs 2 lakh to Rs 9 lakh. This kept the momentum going in the final October-December quarter. Despite being in the highest tax bracket luxury car sales recorded a growth that beat each of the previous five years.
New launches and improved buyer sentiments helped the segment regain lost sales in the previous year. Many top-selling models such the Mercedes-Benz E Class was on waiting period due to the sudden rise in demand.
“The government might take a view of taxing the luxury segment even more looking at the way the segment has performed last year. At 53 percent it is already the most taxed segment. Any further taxes will hamper growth”, said an executive from leading luxury car brand.
While the government will not tinker with the GST rates it can propose addition of new taxes/cess.
“2017 has been a record year for Volvo cars with a robust 28 percent growth, even the luxury car segment witnessed an overall growth of about 15 percent but bear in mind the segment is still miniscule – less than 2 percent of the industry. And therefore, there is immense potential to grow in the years to come”, said a Volvo Cars spokesperson.
With the exception of Audi each of the other five mainline luxury car makers (Mercedes, BMW, Jaguar Land Rover, Volvo) posted a robust growth in 2017 compared to 2016.“We welcome the government’s biggest taxation policy change - GST and we support this initiative. The impact over the first few months nullified the initial lowering of GST for luxury and subsequent increase in cess. We do not see the GST getting higher and eventually the regime is beneficial for business and customers alike. We would like to reach out to the policy makers in mentioning a lower GST for Hybrids should be considered as this would be beneficial for the environment with immediate effect and would be a strong stepping stone towards the 2030 all-electric policy”, added the Volvo Cars executive.