Amid slowing sales, carmakers fear fee hike will further dent demand

Amid slowing sales, a proposed hike in registration fee has come as yet another headache for automakers. If the proposal is notified, vehicle prices, across various segments, are expected to go up. The move, fear automakers, will dent demand further. Companies are of the view that the government should defer the proposed hike, at least for the time being. Auto sales in India plunged to the lowest in two decades in July.

Registration is still a draft notification; that in any case should be postponed until the crisis is over, RC Bhargava, chairman of Maruti Suzuki India, said on Tuesday. He said a buyer was already bearing the brunt of the recent hike in road tax by 1 to 5 per cent.

Pawan Goenka, managing director of Mahindra and Mahindra, also had similar views. Besides GST reduction, the government should also consider a rollback of moves such as a 1 per cent TDS (tax deducted at source) on vehicles above Rs 10 lakh and a proposed hike in registration charges of vehicles, Goenka said on August 8.

Hurdles ahead

Proposed hike (Rs) in registration fee of new vehicles 

  • Rs 20,000 from Rs 1,500 for MHCV Trucks
  • Rs 18,500 proposed increase to hike on-road price of MHCV trucks 
  • Rs 1,000 from Rs 50 for two wheelers
  • Rs 5,000 from Rs 600 for cars

Source: SIAM

“These may be small and doesn’t add to government revenue but has increased the transactional cost for the buyers,” said Goenka. He said all of these come at a time when price of an average vehicle had gone up on the back of advanced safety features and would go up further after BS VI models rollout.

A recent draft notification issued by the Ministry of Road Transport & Highways proposes to increase the registration charges of new vehicles by 10 to 20 times, depending upon vehicle category. The draft notification on hiking registration for ICE (internal combustion engine) vehicles is detrimental to the overall development, according to industry body society of Indian Automobile Manufacturers (Siam).

For new medium goods/passenger vehicles, the draft proposes a hike in registration fee of Rs 20,000 from the Rs 1,000. For trucks, it is Rs 20,000 from Rs 1,500, for two-wheelers it is Rs 1,000 from Rs 50, and for cars it is Rs 5,000 from Rs 600.

Currently, road tax and registration fees amount to Rs 70,000 for a medium and heavy commercial vehicle (M&HCV), which varies across states, depending on the RTO charges. This accounts for 1.8-2.0 per cent of the on-road price of the vehicle, said Shamsher Dewan, vice-president and sector head (corporate ratings), ICRA.

The draft notification proposes to increase the registration fees from Rs 1,500 to Rs 20,000 for new M&HCVs and from Rs 1,500 to Rs 40,000 for renewals. This proposal of an increase of would effectively increase the on-road price by Rs 18,500 for a new vehicle. Hence, these taxes and fees account for 2.3-2.7 per cent of the on-road price of the vehicle.

Prices of cars have risen by 3-5 per cent between June 2018 and August 2019, according to dealer’s apex body federation of automobile dealer association (FADA).

At a time when the industry is going through an unprecedented downturn, an increase in the registration charges of new vehicles “would further aggravate the market condition negatively,” said Rajan Wadhera, president, Siam.

Siam has suggested that instead of hiking registration charges of new vehicles, the government should first look at implementing various measures as suggested by Siam to bring back growth in the automotive industry.  

According to a senior official from a two-wheeler company, the proposed hike in the registration charges of new vehicles will impact the sales in festive season. He said the BS-VI norms, which takes effect on April 1, 2020, would increase the car prices; the registration fee will only add to the woes.