End tax, policy flippancy, we'll double volume in 2 years: Mercedes Benz

Despite a tough environment, the Pune-based Mercedes-Benz was on a roll till September selling 20 per cent more units in the first nine months of 2017 at 11,869 compared to the year-ago period, primarily driven by the pre-and post-GST boost when the effective tax rates initially came down to 43 per cent.

But the euphoria was short-lived as the GST Council in September jacked up the "sin cess" on large cars by 700 basis points to 50 per cent, blunting the all-important festival sales not just for luxury cars but for the entire car segment.

"There has to be a radical change in the very approach to taxation in this country. I just don’t understand why there’s a sin tax on luxury cars," Roland Folger, managing director and chief executive of Mercedes-Benz India told PTI in a freewheeling interview here. If government can rationalise and bring in certainty to the taxation regime, if not bring it down, we can easily double our volumes and also add on to the number of jobs in just about two years," he said.

Terming the country's taxation and regulatory regimes as "very complex and flippant", he said, "There is an urgent need for more clarity on the regulatory and policy fronts as well on the taxation. To put it pithily, the government has to change its very idea about taxation."

To buttress his point, he said all the luxury carmakers saw massive spike in volumes after the tax incidence was lowered to 43 per cent from over 55 per cent earlier.

"Our volumes clipped past 41 per cent to 4,698 units in the September quarter," Folger said arguing that lower taxes lead to higher volumes which in turn increases government revenue and not the other way around.

"When the taxes were reduced and some element of certainty was brought in July with the GST rollout, volumes just zoomed," Folger said.

"And government earned much more in taxes from the higher volumes but unfortunately, that was short-lived as from October again uncertainty was brought to the fore. And the numbers speak for themselves," he said, without quantifying the sales performance since then.

In September, the GST Council hiked the additional cess on mid-size vehicles by 2 per cent to 17 per cent, on large vehicles by 5 per cent to 20 per cent and on SUVs and luxury vehicles by 7 per cent to 22 per cent. As a result, total tax on mid-size cars, large vehicles and SUVs now rose to 45 per cent, 48 per cent and 50 per cent, respectively.

Stating that the September revision had left the industry confused, Folger said, "The auto industry works on long-term planning which needs regulatory and taxation certainty."

"As against this, the industry is being meted out one shock after another," he referring to the diesel ban in 2015-16 and then the directive to go all electric from 2030.

"We need at least a ten-year road map on regulations and taxation. Because our business needs long-term planning and strategy," Folger said.

"Because a supportive policy framework gives us an additional momentum to our growth plans, given our contribution to the economy," he said. But, unfortunately this is what has been missing for many years now, he added.

Asked about his outlook for 2018, he said, "As things stand today, all I can say is that we are cautiously optimistic. We are happy cruising along now."

"Because I've no idea what is the next shocker from government or from the courts is going to be. Planning has become virtually impossible now. Instead we are forced to fight one crisis after another," he said.

As of now, Folger said, he will be extremely happy to meet their original target for 2017 as they hope the post-October disruptions to normalise by November-December as customers normally advance their purchases towards these months fearing price hike in January.