Are High Taxes Killing The Luxury Car Market In India?


A Statement somewhat contradicting the article’s title is that India has among the top 5 largest automotive industries on this planet. Yet, many of the top luxury carmakers in India are complaining about low car sales. Where most car sales are from passenger cars under ₹30 Lakhs, Luxury carmakers have started struggling. The growth of car sales in the luxury car market has been relatively stagnant for the past decade. This is where the company head of Audi, Mercedes-Benz, targets the high taxes of the evildoer. But to what extent this holds true, let us find out.

Audi e-Tron

Taxes on Luxury cars

BMW 3 Series

In the Q1 of 2021, luxury brands like BMW, Audi, Mercedes-Benz and more were expecting an update in the taxation regime in the new Budget. But sadly, that didn’t make it into the books.

  • Luxury cars account for even less than 2% market share of the overall passenger car market.
  • The import duties, when applicable, are in itself high.
  • Next, over these duties, 28 per cent of GST is also charged on the vehicle.
  • Taxes aren’t done yet, on top of these we also have cess. 20 per cent cess is charged on the sedans and 22 per cent on SUVs. This takes the sum of taxes to 48 per cent and 50 per cent respectively.

This form of Tax is like duty on duty making expensive cars even more expensive. Also, we too feel that it’s challenging to sustain in a competitive market with the layering of taxes. Not to forget, the luxury cars sold in India are a lot expensive when compared to the same cars sold in most of the international car market.

What will change if the taxes were lower?

Mercedes Benz EQC

If and when the taxes on these luxury cars are lowered, for one more people will be able to afford expensive cars. This rise in demand will definitely kick start many operations;

  • The luxury car makers will be able to get data on the higher sales volume. This will result in the coming up of new business into India.
  • But before that these companies require a tally of cars sale of the next 5-10 years to put this forward to their headquarters at the respective places.
  • Now, if and when these carmakers see potential growth, they can approach the headquarters for pitching domestic production of such vehicles exclaims Audi spokesperson.

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Cars that enter India as CBUs (Completely Built-up Units) currently face customs taxes of up to 100%. These duties are determined by several parameters, including the engine capacity and the CIF (cost, insurance, and freight) value i.e less than or equal to USD 40,000).

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The company men also said after the introduction of electric vehicles, 5 per cent lower GST along with the aid by the respective state governments (in terms of lower to no registration costs) were beneficial for the electric car segment. Having invested a lot in cars with IC engines, the luxury car makers request the same.