Utility vehicle-makers, whose dream run in sales was jolted by a duty hike in this year's Budget, are looking to alter product specifications to escape the tax bracket.
Utility vehicle-makers, whose dream run in sales was jolted by a duty hike in this year’s Budget, are looking to alter product specifications to escape the tax bracket.
Excise duty was hiked 3% on vehicles of 4 metre in length or ground clearance of about 170 milimetre or having an engine capacity of 1.5 litre.
The hike had came as a big surprise for UV makers, which saw 52% rise in sales last fiscal as small car sales declined.
The impact was immediate as sales of SUVs falling under the purview of duty hike fell 14% in April.
Vehicles including Bolero, Scorpio, XUV 500, Tavera, Innova and Fortuner come under the new tax bracket, while vehicles like Ertiga, Duster do not fall in it.
Mahindra & Mahindra (M&M), the biggest UV maker, has already expressed its disappointment over hiking excise duty. Its SUV sales, except Quanto (which is sub-4 metre) fell more than 2% in April, while its overall passenger vehicle sales grew just 1%.
“The hike in excise has also resulted in a situation where there is no level-playing field between players as some of the best-selling SUV models competing in the same price bracket do not come under the increased duty structure due to the specifications in the new definition of SUVs,” said Pawan Goenka, president, automotive & farm equipment sectors, M&M, a statement last week.
The company said it would look at product alterations in order to align with specifications required for lower duty.
Others may also look at similar alternatives, industry experts said.
“We will have to work all three parameters and try and make changes on our products. Smaller engine in Bolero is possible,” said Pravin Shah, chief executive - automotive division, M&M.
“Industry will respond to the situation in order to suit that definition. We are already seeing some resistance in the market as far as SUV sales are concerned and passing on 3% duty is difficult,” said Shekar Viswanathan, vice chairman, Toyota Kirloskar Motor.
The company, however, did not clarify whether it would look at any product alterations.
According to experts, adhering to even one parameter would qualify for a lower duty.
“It may not be easy to alter the length of a vehicle but a change in ground clearance is something that can be done. Expect a lot of jugaad to happen with new specifications. We could see smaller engines in SUVs, going ahead,” said an auto expert.
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