Patna, Dec. 16: Automobile dealers in Bihar are hopeful that the state government's decision to increase road tax from 7 per cent to 12 per cent on vehicles priced over Rs 8 lakh will not hit business, banking on customers' dislike for extra paperwork.

The cabinet on Tuesday decided to increase the road tax on luxury vehicles, agreeing to a transport department proposal to amend the Bihar Motor Vehicle Taxation Act, 1994, and increase the one-time road tax from seven to 12 per cent on automobiles costing over Rs 8 lakh.

The tax will be imposed on the price of the vehicle excluding VAT (value added tax). So, if a vehicle costs Rs 10 lakh excluding VAT, buyers would have to pay a one-time road tax of Rs 1.2 lakh.

Car dealers in the city, however, expect people to avoid buying high-end or luxury vehicles from the neighbouring states for less money because of the hassles they might have to face later. "The impact on the sale of high-end vehicles will be negligible because people nowadays avoid buying automobiles in other states. It is mandatory to get vehicles registered in the state where you reside for six months," said Narendra Kumar, owner of Alankar Motors that deals in Maruti Suzuki, told The Telegraph. "This involves paperwork involving the state where the automobile was purchased and the state you reside. This proves to be a big hassle."

Narendra pointed out that police check vehicles with registration numbers from other states frequently, adding to the trouble people face for buying cars elsewhere just to save a few bucks.

Dealers also say affluent people buying luxury vehicles are not too affected by price rise or increase in taxes.

"People buy costly automobiles not only for their features and facilities but also because the car serves as a status symbol," said the dealer of Mahindra and Mahindra automobiles. "The affluent class, or people who can afford to buy vehicles for Rs 10 lakh or 20 lakh, are not affected by price rise."

Government officials denied that the road tax hike was an attempt to meet the estimated Rs 5,000 crore loss to the exchequer because of prohibition.

"The decision (to increase the one-time road tax) is expected to bring just Rs 10 to 15 crore extra to the exchequer," principal secretary, transport, Sujata Chaturvedi told The Telegraph. "The government is well within its rights to improve its collections. Road tax in states like Karnataka, Maharashtra, Tamil Nadu, Andhra Pradesh and Kerala is more than Bihar."

Around 5.5 lakh vehicles, including motorbikes, are sold in Bihar every year, and an upswing is being witnessed in the sale of costlier automobiles.

"Earlier people in Bihar preferred small and cheaper cars like Maruti Alto. Now they are graduating to cars in the higher price range. It's a welcome sign," said Alankar Motors' owner Narendra.

Industry pundits, however, claim the hike is just another retrograde move for the people who are already forced to go to other states for several facilities.

Satyajit Kumar Singh, the co-chairman of the Bihar committee of PHD Chamber of Commerce and Industry, said: "People in the state already have to go to neighbouring states for availing health, education and job facilities. Let us not talk about liquor. With a sharp rise in road tax, the people will now look for purchase options elsewhere."

He said the government had earlier imposed 1 per cent road safety tax, but was yet to give an account of how and on what measure the money thus collected was spent.

Automobile Association of Eastern India, Bihar chapter, honorary secretary T.K. Sinha said: "We are going to write to the transport department that if the road tax has been increased to tackle the loss of revenue because of prohibition, then it is unwarranted. It is a big hike and should have been limited to just 3 per cent."

He expressed concerns over automobile companies and dealers resorting to changes in billing or starting to offer discounts on several vehicles to bring their prices below Rs 8 lakh to help customers escape paying the hefty tax.