Published Editorial

Budget 2013: Has it marked the come-back story for auto sector?

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The Economic Times

by

Chetan Kakariya
Senior Tax professional
EY

Dark clouds have engulfed the auto sector in the form of rising fuel prices, high interest rates and weak market sentiment with the growth rates going down. Auto sector had high hopes on the Budget 2013 for making a come-back. Has FM delivered what the industry expected? Let's find out.

FM has proposed to continue Jawaharlal Nehru National Urban Renewal Mission ('JNNURM') and also increased the fund allocation to the program by over 100%. Significant funds are planned to support purchase of upto 10,000 buses. The auto industry will definitely breathe a sigh of relief as the trucks and buses segment, which can also be considered a barometer of the economy, had declined by a massive 40% in January 2013.

FM has also been conscious of the need to develop infrastructure and has made announcements to increase investment in infrastructure such as encouragement to debt funds, credit enhancement to infrastructure companies etc. Further, a regulatory authority is proposed to be constituted to address challenges faced in road construction. These measures are likely to have a positive impact on auto industry.

On direct tax side, 15% investment allowance is a welcome move for new investments in plant and machinery exceeding Rs 100 crore. On the flip side, increase in surcharge on income-tax from 5% to 10% for corporate having taxable profits in excess of Rs 10 crores could be a slight dampener.

On the indirect tax side, the Union budget proposals do not seem to deliver much and have in fact been on the negative side in view of the increase in basic customs duty on luxury cars from 75% to 100% and on the motorcycles with engine capacity of 800cc or more from 60% to 75%.

While the FM can justify that these are luxury goods and have limited consumption by individuals in the high income group, from an industry perspective, this is also a way of introducing a high end product with better technology and safety features into the emerging market till the market reaches a level where the volumes can justify local production rather than imports.

The passenger vehicle industry was expecting the excise duty to be rationalized this year. However an increase in the excise duty on SUV's exceeding engine capacity of 1500 cc from 27% to 30% has come as a dampener at a time when this segment was being looked upon as the new segment for all auto manufacturers.

The reduction in excise duty for the truck chasis from 14% to 13% does provide some relief to the transport vehicle segment. However, the fact remains that while the standard rate of basic customs at 10% and excise and service tax at 12% is retained, the auto sector continues to have duty rates ranging at 13%, 27% and 30% for excise and 10%, 30% to 100% for basic customs and the effective duties being much higher for this sector in comparison to all other industries.

(Views expressed are personal)