GST ties luxury car market; will govt cut Gordian knot?

If one plans to buy a luxury car costing Rs 30 lakh in India, the cost of the car would shoot up to nearly Rs 45 lakh, owing to the high rate of Goods and Services Tax (GST) charged on such cars in the country.

Rohit Suri, President and Managing Director, Jaguar Land Rover, believes it to be the Gordian knot that does not allow the market to grow.

The luxury cars industry has been requesting the government to bring down the tax slab, says Suri, but to no avail. “We are not saying make it zero, we are only asking for a reasonable taxation policy.”

Luxury vehicles in India attract the highest slab of GST, which is 28%, but there is an additional 22% cess on SUVs and 20% on Sedans. So, a buyer pays 50% tax on SUVs and 48% tax on Sedans.

The overall size of luxury cars industry is about 40,000 units annually in India, however, the company competes in only 27,000 units, within which it has around 15% market share.

High taxation, less expansion

Jaguar Land Rover has 27 outlets spread across 24 cities. The metro cities do really well for the company, Suri mentioned, with Delhi, Mumbai being the brand’s star markets. On the company’s expansion plans, Suri called this ‘unreasonable taxation’ a major deterrent.

“We calibrate our expansion in line with how the industry is growing, so right now it’s on hold, but if reasonable taxation comes through, the market will grow, which would enable us to open more showrooms,” he said.

Suri added that each showroom employs about 200 people, but it is only logical to open showrooms when there is a market for it.

“Heavy taxation does not allow the market to grow, which is the reason this market is very small. There have been requests made by the industry to the government to reconsider the tax slab, bringing it down from 28% to 18%, but nothing has been done so far.”

The automotive slowdown

A slowdown has been plaguing the automobile industry for months now, with auto sales witnessing a persistent downtrend. Suri blames high GST rates for propelling this slowdown. “The overall passenger car market remained static last year. Apart from other factors like liquidity crisis in the country, financing not being easily available etc. that have contributed to the situation, I feel, the market growth could have been achieved if taxation was fair.”

The automotive company sold around 200 cars in 2010, according to Suri, while last year the sales increased to more than 4000 cars.

“There has been an exponential growth through the years. The first quarter has not been really good, the overall industry has come down. We had elections, so that too subdued the market. The industry was hoping that GST rates would be brought down, but that did not happen. The government has not done anything regarding this, and we suffer from that quite heavily,” he said.

The e-car plan

Talking about the company’s e-car plan, Suri said, they have very robust plans as far as electric cars are concerned. “We have already launched I-Pace, which has been a very successful model, and we are looking into bringing it to India, maybe sometime next year. At the same time, we are careful about launching new electric cars, because we want to make sure that it does not cause any inconvenience to the customers in reference to the charging infrastructure in the country.”

Leveraging technology

Jaguar Land Rover recently launched a new showroom in Bengaluru, which is equipped with a digital personalisation studio. The studio offers customisation options, for instance, if a customer wants to see a car in a different colour, he would be able to see that on a screen. It also showcases and retails the latest accessories and branded goods.