Mercedes-Benz India MD: India is not comfortable cutting taxes on luxury goods

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The rich and affluent have always figured high up on the taxman’s list when it comes to generating additional revenues for the exchequer. And not too far down on that list are the playthings of the wealthy, luxury cars being one of them.

The penetration of luxury cars in India is so low that some have questioned the gains from hiking taxes on them.

Roland Folger is the managing director and chief executive of Mercedes-Benz India, the leading luxury car maker. Mercedes’ India volume sales dropped last year for the first time in 5 years to 13,231 units.

Speaking to Moneycontrol, Folger explained that if taxes on luxury cars were to be cut by even 10 percent, then volumes would rise significantly thereby adding to tax revenue.

There is a section of thinkers amongst law makers who are in favour of taxing the luxury segment more. Your thoughts on it?

The question is what do you want to achieve. If you want to gain votes by playing to the public mood then that may be a good strategy. If you want to make more taxes then it does not make any sense whatsoever. The potential for luxury segment in India is significant. The luxury segment is 1.35 percent of the overall sales figures. This is amongst the lowest in the world. Now if the government were to reduce the taxes by 10-20 percent, the overall sales would practically double. So increase in volumes will compensate for the tax forgone. I hope that the people at the tax department are intelligent enough to see this.

Where does the problem lie?

It’s a shame because the potential is really out there and other countries have seen that. Its only India, with a little bit of socialistic history, which is still not feeling comfortable in doing something that on paper looks like it is supporting the richer people.

Last year was not so great for luxury car sales. How do you see demand panning out in 2017?

We never thought that demonetisation would affect us in the mid-term because practically 100 percent of our customers have their vehicles financed. There was an emotional effect to this overall issue where people did not feel like buying cars when they cued up outside ATMs. However we believe that there was a counter impact too. A lot of people in the past were shying away from buying luxury cars because it made you visible, now that issue is gone. So more people might say that ‘the tax people know about my wealth and I might as well go and buy something’.

Indian consumers experiment with brands across segments, is this challenging?

This would indicate that there is less brand loyalty but our experience is significantly different. There are only two countries in the world where I have seen such a widespread fascination and knowledge about the brand. The knowledge about Mercedes-Benz is much more than I have seen in other countries. We have been here since 1951 whereas other brands had come only 10 years ago.

Will you increase your localization efforts further?

We don’t stop at the moment of 60 percent, we are looking into other possibilities as well. But that requires a much higher (sales) number. India is as large as China and there are as many rich people here as there are in China. There is not really a big reason why we should not, in the longer term, see numbers that we sell in China.

What are Mercedes’ plans with regards to hybrids for India?

We have full hybrids, plug-in hybrids in each and every one of our carlines. All are ready to be imported. We would love to produce them locally here. If there are incentives to bring that kind of technology to the Indian market we would bring our newest technology here but there needs to be some incentive there.

But are your customers asking for it?

If the price is right then definitely but there needs to be a price related issue. Nobody likes to buy a car with a 120 KGs battery at the back that takes away half the trunk space.