Budget 2013: Why SUV found special mention this budget day

So what is a Sports Utility Vehicle or SUV? Normally, this question would not play on most people’s minds on Budget day but today was an exception since the Finance Minister made a reference to the term “SUV” while referring to large vehicles which occupy more space and are fuel guzzlers. And promptly announced excise duty increase of 3 percent to take the total excise to 30 percent.

The question is valid since as per existing definitions for tax purposes, passenger cars are classified as only small cars and large cars, and there is no classification as ‘SUV’ for excise purposes. Now, cars are either up to 4 m long or longer. Further distinction is made on the basis of fuel they use -cars which are up to 4 m long and have 1200 cc petrol or up to 1500 cc diesel engine displacements are classified as small cars. Longer cars with higher engine displacements are called large cars.

As of now, small cars are taxed at 12 percent excise duty whereas large cars- and that includes SUVs-are charged 27 percent duty. With today’s Budget announcement, there is confusion over which cars will not attract higher duty.

“What is the definition of an SUV according to the FM? Are crossovers such as Mahindra Qanto, Renault Duster, Maruti Ertiga also SUVs? And what about duty on large cars such as, say, Honda Accord? Does it stay at 27 percent or goes up to 30 percent? These issues need clarification,” Director General of the Society of Indian Automobile Manufacturers (SIAM) Vishnu Mathur said.

Even the ‘Memorandum Explaining Provisions in the Finance Bill’ issued by the Finance Ministry later today refers only to SUVs, saying “excise duty on SUVs is being increased from 27 percent to 30 percent”. As of now, the Utility Vehicle category (where SUVs reside as per SIAM) accounts for less than a fifth of the overall domestic vehicle sales and exports. So roughly, one in five passenger vehicles sold in is a UV. Mathur said their share in the overall market has already begun to decline and today’s decision could further hurt their sales.

SUVs are typically seen as large fuel guzzlers and have been under the Government’s scanner for quite some time. Earlier, the thinking about these vehicles was that since they are usually priced above Rs 10 lakh and rum largely on diesel, the SUV users should pay more taxes and there was a proposal to tax SUVs Rs 50,000 per car per year as road tax.

Now that the Government has raised diesel prices in a caliberated manner, the proposal to levy an annual tax on SUVs has been axed. But the new excise slab anyway makes buying an SUV almost three times more taxing than buying a hatchback.

An anti SUV bogey was started by Jairam Ramesh when he was Union environment minister in 2010. He has said that using diesel-guzzling SUVs was “criminal”. Ever since, the Government has been increasing duties on SUVs year after year. In the last Budget, duties were increased from 22 percent for some SUVs and 25 percent on others to a uniform 27 percent for all cars classified as large.

The UV segment has been the fastest growing in the passenger vehicle space, by almost 57 percent between April to January this fiscal when small cars and other vehicle categories are declining. Sales of UVs were 4.51 lakh units against 2.88 lakh units sold in the same 10-month period of previous fiscal.

Today’s decision will impact India’s largest utility vehicle maker Mahindra & Mahindra the most. This company sells about 21,000 units in a month and accounts for almost half the UV market.