Motown miffed over SUV tax; Mahindra writes to government

It's been three months since Finance Minister P Chidambaram imposed an additional three percent excise hike on SUVs in the Union Budget. While the industry has grudgingly accepted the Government's fiat, the finance ministry's objective of garnering more revenues could fail. CNBC-TV18's Ronojoy Banerjee reports Anand Mahindra has written to the Government pointing out the its flawed logic.

Also read: FinMin may review excise duty hike on SUVs: Sources
On February 28, Finance Minister P Chidambaram dropped a bomb on leading SUV manufacturers by imposing a higher tax. The reasoning was not hard to guess. While the passenger car segment declined nearly 7% in FY13, the utility vehicles grew at an astonishing 52% during the same period.
A back of the envelope calculation revealed that even if the SUVs clocked a meagre growth in FY14, the government still stood to add a neat Rs 1,000 crore as revenues to its coffers thanks to the 3 percentage hike in excise.
CNBC-TV18 has accessed a presentation made by a leading manufacturer to the finance ministry last month according to which Mahindra & Mahindra stood to shell out an additional Rs 450 crore, followed by Toyota at Rs 240 crore, Tata Motors at Rs 83 crore, Renault at Rs 60 crore and General Motors at around Rs 36 crore.
This is the projected additional excise duty outgo for the year based on sales volumes from the previous fiscal. The calculations however could go very awry. Early sales trend suggests that customers are now preferring SUVs like Ertiga and Renault's Duster that do not fall under the additional duty hike. Infact, last month for the first time Duster outsold M&M's Scorpio.
In January and February before the additional duty kicked-in, Duster sold 3,554 units and 5,590 units, but in March when its other rivals like Scorpio and XUV 5oo got more expensive it saw its sales jump to 6,313 units.
It is the same story for the Ertiga that clocked sales of 6,093 units and 5,957 units in the first two months of the calendar year but saw numbers jump to 6,448 units in March.
In April, both Duster and Ertiga sales stabilised at 5,362 units and 5,317 units. At the same time, cumulative sales of the affected SUVs in March like the XUV, Bolero, Sumo, Scorpio, Tavera - post the excise hike remained flat while it fell a whopping 14% in April.
Even in May these vehicles continued to be under pressure.  Sales volume of the affected SUVs could take a further hit as the Ford Ecosport hits roads.
Meanwhile CNBC- TV18 has learnt that Chairman of Mahindra Group, Anand Mahindra wrote to Revenue Secretary Sumit Bose in April against such a move. Mahindra argued that not only are popular sedans like Maruti's X4 and Toyota's Etios longer in length, as against a bolero or a sumo. Even on mileage Bolero outscored small cars like even the Eon or the Alto when calculated in terms of mileage per seat.
Mahindra is also learnt to have said that the move would cut short its ambitious plans of going global with its range of vehicles through exports. The arguments though, so far have fallen on Government's deaf ears as it is ruled out any re-examination of the proposal.