making luxury affordable (Reuters)

Mumbai, Sept. 17: Credit Rating Information Services of India Ltd (Crisil) today asked the government to bring down the huge tax burden on passenger cars, a move which it said, could go a long way towards making them more affordable to the Indian buyer, besides tapping the potential that the country’s huge population offers.

Crisil said that while it takes around 28 months’ average salary to purchase a car in the country, it takes around 16 months in Thailand, eight months in Malaysia and as low as three months in the US and western Europe. However, in India, various taxes such as excise duties and central and sales taxes have a cascading effect, pushing up the ex-factory price of a car by around 60 per cent.

“In effect, almost one-third of every rupee that an Indian customer pays for purchasing a car is on account of various taxes. This is much higher than that paid by customers in the US at around 4 per cent, Japan at around 10 per cent, Europe at an average of 15-20 per cent or even Brazil at 23 per cent,” the rating agency added.

According to Crisil, one of the ways of bringing down acquisition costs and consequently improving demand is to lower the tax burden on cars. At current price levels, the threshold annual household income for purchasing an entry-level car is estimated to be around Rs 2.90 lakh.

Based on a survey of households eligible for purchasing an entry-level car at various tax levels, Crisil estimated the incremental annual demand potential to be around 1.60 lakh cars if tax levels are reduced to half and 2.80 lakh if they are reduced to one-fourth of the current level.