High road tax hurts premium car sales in Kerala

Kochi: The high road tax on vehicles in Kerala is hurting the premium car sales in the state. This tax, which is much higher than other states, is not only affecting the sale of new vehicles but also the sale of used cars. The premium car users are thus resorting to the practice of registering vehicles in other states and using these on Kerala roads, according to auto dealers.

Even for popular models priced at Rs 20-25 lakh, the price in Kerala, including the tax, is around Rs 2.5 lakh higher than in Delhi, which is the largest market. Those seeking to buy luxury cars priced above Rs 50 lakh are in a bigger quandary. Even if the car is bought for exorbitant prices, the resale prices are in the same range as in Delhi. As the resale value is less, several people are reluctant to exchange their cars and buy new ones.

Buying a premium car in a place such as Delhi and registering in a local address can save lakhs of rupees. For premium customers, it is not much of a hassle to arrange a local address.

The crisis was triggered by the imposition of simultaneous hike in the two taxes on vehicles - one per cent increase each in road tax and GST in the wake of the floods and the financial crisis. As the road tax is calculated on the price of the vehicle inclusive of the GST, it led to a peculiar scenario of one increased tax upon another. When this became a talking point, instead of reducing the taxes, the government merely incorporated the inclusive rate into the new rate, according to dealers.

Meanwhile, the 1 per cent flood cess with the GST will end this month. However, the highest road tax in the country will continue in the state. The road tax on cars priced above Rs 20 lakh is 21 per cent. In most states, it is 10 to 12 per cent. The government does not agree that the sales will increase if Kerala lowers the tax.

Kerala levies road tax in slabs. Levied as a fixed percentage of the price, the various rates are then fixed in different slabs. This has come in for criticism. For example, 21 per cent tax is levied for two-wheelers priced over Rs 2 lakh. The prices of some of the best-selling bikes in Kerala have crossed Rs 2 lakh by Rs 1,000 to Rs 10,000. This means that these bikes attract tax in the 'luxury' slab. The slab system must be removed or reviewed.

Even eliminating the system of collecting road tax in lump sum for 15 years and introducing a system of levying tax for only the first five years initially will significantly boost the sale of new vehicles.

Those customers, who buy premium cars with the intention of using these for four or five years, are turned away from Kerala due to the prospect of having to pay a huge amount as tax upfront for 15 years.

The Kerala government will lose crores of rupees if the luxury car market moves out of the state. This is one of the government's major sources of revenue. The auto market is struggling to recover from the Covid crisis.