In all likelihood, carmakers and car buyers may wake up to bad news on the first day of 2015. The government may not extend the excise duty concession beyond December 31, 2014, a relief granted first by the previous government in the interim Budget in February 2014. This was then extended by the current government in June 2014 till December 31, 2014 and now, a further extension is unlikely. However, a formal communication from the government regarding the withdrawal of excise duty concession is yet to be received.

 

In February 2014, the government had reduced excise duty on cars, utility vehicles, two-wheelers and commercial vehicles to boost sales and market sentiment for the struggling auto sector. The excise duty on small cars, two-wheelers and commercial vehicles had been reduced by four percent (from 12 percent to 8 percent) while SUVs enjoyed a relief of six percent (from 30 percent to 24 percent). For mid-sized cars, the duty slash was from 24 percent to 20 percent and for large cars, from 27 percent to 24 percent.

 

What it means for you

 

Carmakers, of late, have been citing an increase in input costs and many are all set to hike prices in January. With the excise duty relief to be withdrawn, automakers will be reworking pricing strategies with immediate effect. While there is no official communication from carmakers yet, this is what you can expect.

 

Small hatchbacks such as the Maruti Alto K10 are expected to get dearer by around Rs 15,000 while premium hatchbacks and sub-four-metre sedans such as the Hyundai i20 and Maruti Dzire may see a price hike of around Rs 27,000.

 

SUVs such as the top-spec XUV500 and Totoya Fortuner could get dearer by around Rs 45,000 and 75,000, respectively. 

 

Full-size sedans such as the Toyota Corolla and Skoda Octavia are likely to get pricer by around Rs 35,000 to 50,000.

 

The examples above are meant to give a general idea about the actual impact of the increase in excise duty on customers. In effect, it is roughly the equivalent of having to downgrade by a variant for the same amount of money. 

 

While the withdrawal of the excise duty concession will be frowned upon by carmakers, the silver lining if any, is that the government is likely to reduce fuel prices again, which could drive sales for manufacturers.