Why India must change the way it taxes high-end cars
₹12 lakh in purchasing-power-parity (PPP) rupees – a tad less than the entry price of a full sedan from Maruti or Honda in India (not the sub-four-metre ‘compact’ sedan that’s unique to India). Instead, a Mercedes C300 in India starts at over ₹65 lakh. The reason? Taxes.
The import duty on cars ranges from 30-100% depending on whether the car is semi-knocked down or completely built. There is also 28% GST and a cess of 22%, which adds another 50% to the import price. Finally, there is the registration charge – 15% of the ex-showroom price – which ends up pushing what could have been a middle-class mover into the ultra-high net worth bracket.
Putting punitive levels of taxes on so-called “luxury" goods harks back to India’s socialist-era approach to taxation, where anything other than the bare necessities was considered a wasteful luxury in a country starved of resources and capital. But India is no longer socialist, or poor. It is an upper-middle-income country, one of the world’s emerging economic superpowers.
It also has, by all accounts, one of the world’s fastest-growing middle classes. According to a recent Deloitte study, India is set to become the world’s third-largest retail market behind the US and China by 2030. Its economy is projected to be the world's third-largest by 2030.
By that year, India is set to add 110 million middle-income households (currently 190 million) and 14 million high-income households (currently 15 million) to the consumer base. This new affluence is being spread more evenly. India will see a fivefold increase in ‘super rich’ families by the turn of the decade and a large chunk of the growth will come from rural areas.
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