Higher tax on luxury cars will hit tech growth: Mercedes

Top luxury carmaker in India, Mercedes Benz has urged the Union government to reduce the tax burden on the luxury car segment while implementing the Goods & Services Tax (GST). It says excessive taxation on the segment will be detrimental to the automotive technological growth in the country. 

“If the government expects luxury carmakers to bring new technologies on safety and environment in the country, it is not an ideal move to kill the segment by overtaxing it,” Roland Folger, MD and CEO, Mercedes-Benz India, said. “We have observed in other countries that with a reduction in taxes, sales have gone up significantly. Optimising the vehicle payout (from taxes) isn’t helpful for the overall industry.”

Luxury cars will attract an additional cess over the highest 28 percent rate for automobiles under the four-tier tax structure set by the GST Council. On the other hand, the government is yet to define what constitutes a luxury car. 

Folger said the company would benefit from the cutback in logistics costs of businesses as well as the enhancement in ease of doing business following GST's implementation. 

“GST will make trade between the states easier. It will positively impact how we can move vehicles between states. At present, once our dealers pay a certain amount of tax for a particular state while moving a batch of vehicles, they can’t get it back in case there isn’t adequate demand for it. However, once GST is implemented, we and our dealers can move stock in a facilitated way,” said Folger.

Demonetisation impact

The shortage in cash arising out of the government’s decision to scrap Rs 500 and Rs 1,000 currency notes is not a big concern for Mercedes. About 95 percent of its vehicles are financed. The move however has dampened buyer sentiments since there has been a significant decline in footfalls and enquiries at the dealerships. 

“People are emotionally insecure. Customers are not feeling like going out there and buying luxury items. We have seen less customers coming to the showrooms and it is taking them longer to take decisions,” said Folger. 

Moreover, it will be difficult for the carmaker to match the sales growth of last year due to the demonetization move as well as ban on sale of diesel vehicles above 2,000 cc in Delhi-NCR. The company had registered sales of 13,502 cars in 2015, up 32 percent over the previous year.

However, demonetisation would not affect the company’s plans for 2017, said Folger. Mercedes aims to continue to launch products at the same or higher rate. It plans to end 2016 with 13 launches as against 12 announced earlier.