Luxury Cars in India attract 28 percent GST along with 20% cess on top of it. For SUVs or vehicles of engine capacity over 1500cc this cess is 22%. Adding up all of these total tax on luxury cars come out to nearly 50 percent. Excise duty on luxury cars is 27 percent for engine capacity of 1500 cc and 30% fro engine capacity over 1500cc such as SUVs.
These heavy taxes are core reasons behind continued price shoots and stable sales numbers in the luxury car segment in India.
As the ICRA reports , the luxury car market in India has been declined by approx. 50 percent within a year during the period of CY19-CY20.
While the luxury card industry crossed sales of over 30000 units. However the annual volume for CY2018 was 39,640 which dropped to about 19,439 in CY2020.
These heavy taxes impact the sales of luxury cars in the country for which experts give solution to “Make in India”. While even Indian government is promoting Make in India by inviting manufactures to produce in India, but it is not an easy path to take for automobile industry.
Naveen Soni, president of Lexus India advises to make luxury cars in India to avoid heavy duty and to protect oneself from changes in the world’s supply and overcome these difficulties.
However experts believe that it is hard for automakers to produce luxury cars in India given the current tax structure and heavy duty while lack of enough critical mass makes it more difficult.
Despite this, many automakers are still moving to assemble in India if not setting up a vast unit to manufacture.
Another successful way that car makers are considering is the localization. As Martin Schwenk, MD and CEO of Mercedes-Benz India says that The manufacturing facility for Mercedes-Benz is the cornerstone of their success in India and an essential part of their CKD (completely knocked down) network.
He adds ” Mercedes-Benz has been making in India since 1995 and with 13 CKD products, we have one of the largest portfolios of locally produced vehicles for a luxury car brand in India. 90 per cent of our sales volumes in India comprise products that we make in India”.
As Schwenk continues about their localization efforts saying “Our localization efforts have evolved over the last two decades.
From Internal Combustion engine, we are now transitioning to manufacturing of electric vehicles and have adopted digitization widely across our shop floors”.
Sharad Agarwal, head of Lamborghini India Says that India is a crucial market. He also states that if taxes will be more rationalize, India will have more growth.