Budget likely to be benign towards auto sector

The forthcoming Budget for 2009-10 is unlikely to raise excise duty on wide range of automobile including two wheelers and passenger cars.

“Finance Minster Pranab Mukherjee is likely to adopt a status quo approach in tax proposals for auto sector,” sources told Deccan Herald.

The duty concessions announced for auto sector in the stimulus packages are likely to continue in current fiscal, they added.

The government while unveiling the stimulus package brought down across the board cut in Cenvat by four percentage points benefiting all sectors including the auto industry.

Tax benefits

The incidence of excise duty on cars with capacity up to 1200 cc was reduced by 4 per cent. Even cars other than small cars, which used to attract composite rates (combination of specific and ad valorem rates) also got tax benefits. The ad valorem component of these rates was reduced from 24 per cent to 20 per cent.

The Tax Research Unit (TRU) of Central Board of Excise and Customs (CBEC) in its inputs is understood to have recommended for “ status quo approach” for all kinds of vehicles in the auto industry.

Tax Research Unit argues that continuation of “status quo approach” will act as “stabilising factor” for growth of the industry, which, in turn will lead to higher revenue collection. 

Research unit differs

The Tax Research Cell (TRC) of the budget division of finance ministry while agreeing with the “status quo” approach of the TRU is learnt to have recommended for restoring the excise duty component on big and luxury cars to earlier level of 24 per cent. It is of the view that since there is reversal of decline in sales turnover of car makers as reflected in the sales data of April/May this year, there is a case for restoring ad valorem component of big cars over and above capacity of 1500 cc to earlier level of 24 per cent.

Restoration of excise duty on big cars to earlier level is not going to affect the demand cycle of upper segments of the car industry, Tax Research Cell has argued.