The government's sudden move of revising GST rates upwards two months after its launch affected sales of luxury vehicles in India. The luxury vehicle market in India is expected to grow much slower. Higher tax rates under the GST has played dampener in the last quarter of 2017.
"GST has clearly impacted the luxury vehicle industry. Volumes would have easily grown by a good double digit in the range of 18-20 percent," Rohit Suri, president and managing director, Jaguar Land Rover India said. "The impact of GST will, perhaps, result in a growth of high single digits or low double digits," he added.
Overall sales numbers for 2017 could be around 35,000 units, due to the surge of demand following the positive GST rates, before the sales slowed down due to the upward-revised GST prices.
Roland Folger, managing director and CEO, Mercedes-Benz India, said GST was a missed opportunity for the government - higher volumes for luxury cars would have meant higher revenue generation. "GST was a lost opportunity for the government to boost the luxury car industry’s long-term growth potential," he said.
Initially, (with the exception of hybrids) tax on luxury cars was dropped, and carmakers passed on the benefit to customers. Cars were to be taxed at a flat rate of 28 percent, with an additional cess (between 1 and 15 percent), depending on which category it fell into.
The GST Council then hiked the tax. The new GST code, the additional cess on midsize vehicles was raised by 2 percent to 17 percent, on large vehicles by 5 percent to 20 percent and on SUVs by 7 percent to 22 percent. This meant prices were almost the same as pre-GST levels.
The tax revision, which happened in mid-September 2017, came as carmakers were en route to posting high growth figures, which were much needed post demonetisation, higher cess on luxury cars and the Delhi ban.
Rahil Ansari, Head, Audi India said, "The cess hike definitely disturbed the positive momentum. Uncertainty in the minds of customers with regard to GST as well as the cess hike had a negative impact on us."
According to Suri, "Overall JLR India's growth rates were very high in August and September but October and November 2017 has clearly dampened the overall momentum that was there already in the market. Because now the GST rate, for example for SUVs, is at 50 percent, as opposed to 43 earlier.”
WHAT TO EXPECT IN 2018
Luxury carmakers are hopeful that the rough patch is behind them and are looking for an upswing in sales. Mercedes-Benz is bullish about the Indian market and is expanding its footprint in Tier 2 and Tier 3 cities.
“We are also moving ever close to our consumers and expanding our retail and after-sales network in T2 cities. In December itself we drove into Salem, Hoodi, Thrissur at the same time in Mumbai with our third partner,” Folger said. However, he added, "We hope there will be no unpleasant surprise from the policy front, which proves to be yet another headwind for the luxury car industry’s growth."
Jaguar Land Rover India has revised prices of its CKD products (Discovery Sport and Range Rover Evoque) in April and is looking at the Velar to aid sales. "2018 is going to be an important one with the launch of the Velar," affirmed Suri.
Swedish carmaker Volvo Auto India recently launched the XC60 at a very competitive price of Rs 55.90 lakh. It’s also started assembling the XC90 at its plant in Bengaluru, and intends to assemble the XC60 soon as well. "We’re not ready to announce anything specific but we are certainly thinking longer term about building on our SPA (Scalable Product Architecture) platform here. So, the XC90 is built on the SPA platform and under consideration could be the S90, the V90 Cross Country and eventually the XC60. But that’s certainly a step that is, I would say almost inevitable," Charles Frump, managing director, Volvo India said.
STABLE POLICYMAKING
To minimise the effect of global factors, wants the government of India to rationalise its tax structure in the long term to enable better long-term strategy, critical for any business and particularly luxury vehicles. “The government should re-consider the exorbitant taxation luxury car industries face and it is high time we look at tax rationalisation,” said Folger.
"Penalising the luxury segment, which already complies with all the laws of the land, is not addressing the key concern of increasing emissions. We need to get rid of the actually polluting older diesel vehicles running on BS II and BS III," he added.
Suri added, “We are just 1 percent of the total passenger car market and the reason is high taxation. In our most mature markets, we are able to balance things out (external factors); you will see the luxury car market to be at around 4-5 percent.”