The Union Budget 2016-17 presented by the government has proposed additional tax and cess on passenger cars, thereby setting up for an increase in ex-showroom prices. The cess will be implemented in slabs, with petrol and CNG cars being affected the least, while the diesel large cars and SUVs being taxed the most.
The government will impose 1 per cent tax on cars worth more than Rs 10 lakh at source. This should affect every model starting with certain variants of the C-Segment sedans and budget SUVs like the Honda City, Volkswagen Vento, Hyundai Creta and the Renault Duster.
Apart from above, all the passenger cars will attract infrastructure cess. Additional 1 per cent cess will be levied on the small petrol car, LPG and CNG cars. The small diesel cars will have to pay 2.5 per cent cess, while the large cars will attract 4 per cent cess. The higher per cent of additional taxes on the diesel cars clearly show that the government is trying to discourage people from buying diesel passenger cars, amid uproar over pollution.
However, there are still a few positives in the budget for the automobile industry. The government intends to spend mammoth Rs 97,000 crore on infrastructure, which would indirectly encourage people to buy cars. Also, it is speculated that the budget will help RBI cut interest rates, which would make loans affordable and automatically have a positive effect on car sales.