Excise Duty on Cars

I'm not a regular on car updates, but today I was stymied by Maruti Suzuki's smart thinking on cutting down the price of their best-selling sedan in India - Swift Dzire.

Quoted as Swift Dzire 3.99, the latter indicating the length of the sedan which was chopped down from 4.2m to fit the model into the small-car segment. This ensures a reduction in the Central Excise Duty from 20% to 10% and a subsequent reduction in price by 50,000 - 60,000 rupees.

Dzire 2012 will be released in 2 variants - a 1.2L petrol and a 1.3L diesel. Its launch in the first quarter is expected to break the previous records held by its hatchback companion - Swift.

After the read, I was tempted to understand more about the Excise Duty on cars. So I surfed a bit and learnt quite a lot. Excise duty on cars is classified into two segments - Small cars and SUVs. The classification is based on the length of the vehicle and it's engine capacity. A car with length less than 4m and an engine capacity less than 1.5L comes under the small car segment and as discussed earlier, faces an Excise Duty of 10%. Any car which does not satisfy the criterion faces an Excise duty of 20%.

Some OEMs like VW have met this challenge by introducing cars in both segments, while others like BMW and Audi have opted for CKD (completely knocked down) imports, importing the auto parts at an Excise Duty of 10% and setting up assembly plants locally, also creating employment opportunities.

The government on its part has been favourable to Hybrid technology, further reducing the Excise Duty on Hybrid kits to 5%. But it's a long way to go in terms of technology and expertise in this aspect.

There's a majority of folk who also believe that classification of cars for lower and higher Excise Duty would be most effective if its based on fuel efficiency rather than the size, to give the OEMs a push to introduce more fuel efficient cars into the Indian market. There's no doubt that this would surely impress a fuel efficient Indian.

Another blind spot in the whole discussion is the fact whether the end price of the car will be reduced pertaining to the reduction in Excise Duty or will the OEMs rake in all the profits. So far in the case of Swift Dzire, it's been a boon to the customer. Whether this will hold true for every OEM has to be seen.