Taxman signals red for luxury carmakers

It’s the last thing Motown needed amid falling sales.

The taxman’s notices to 35,000 super-rich people, that is.

The psychological effect of such scrutiny can land the second whammy for carmakers who are groaning under flat sales due to the economic slowdown.

According to industry experts, overall sales of luxury cars may slow down further this year on account of cautious spending.

“The super-rich will get more careful now because they know that they are being watched.
Sales of luxury items like top-end cars, private jets, yachts will get affected. Especially, those buying imported cars will get impacted drastically, though it would be more in the short term,” said a Delhi-based dealer of luxury cars, who did not wish to be named.

“Sales of luxury cars have always been watched by the Income Tax department. However, people adopt different ways to avert the scrutiny,” said an analyst with domestic brokerage.

Not all dealers think sales will be severely impacted though. “Today, around 60% of luxury car sales happen through bank loans, wherein we have to give records of income of the potential buyer. So, it’s a transparent process,” said a Mumbai-based Mercedes Benz dealer.

Agreed Abdul Majeed, leader of the automotive practice at PricewaterhouseCoopers: “Buying a luxury car is not just limited to a businessman with high turnover. There is huge demand from the corporate sector as well. Top-level executives aspire to buy high-end cars. Hence, I see a limited impact of the Budget as most of the sales happen on bank loans with a clear income record.”

Barring Audi, sales remained flat for most luxury carmakers in 2012. With slowdown still continuing, the industry is not expecting significant growth this year.

Also, an additional tax of 25% on fully-built imported vehicles will further act as a dampener.

According to the industry body Siam, sales of Mercedes declined 14.4% on-year during April-January; BMW India sales dropped by 7.11%; but Audi India grew by 29.35%.

@yugac