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High GST rate forces Mahindra to pull the plug on Scorpio Hybrid

LiveMint logoLiveMint 06-07-2017 Shally Seth Mohile

Mumbai: For Mahindra and Mahindra Ltd, this is the end of the hybrid vehicle journey—at least for now.

The maker of Scorpio SUV and the XUV 5OO on Thursday said it will phase out the mild hybrid version of Scorpio and refrain from launching any new hybrids, since the high taxes under the new goods and services tax (GST) regime have made them unviable.

“While we will be in readiness to launch a full-hybrid and mild-hybrid models, we are unlikely to launch them till there are benefits of lower taxation,” managing director Pawan Goenka told reporters in a conference call.

Under GST, all hybrid automobiles attract the top tax rate of 28% plus a 15% cess. This is the same rate as that for large luxury cars and SUVs. While the price of the Toyota Camry full-hybrid has gone up by up to Rs5 lakh depending on the state, that of mild-hybrid variants of Scorpio, Suzuki Ciaz and Suzuki Ertiga have gone up by more than Rs1 lakh.

At these rates, customers do not perceive enough value in buying costly hybrid models, Goenka said.

He said he does not expect the GST Council to review the rates either. “It looks like their decision is firm and final,” he said. The Council, he pointed out, has made it amply clear that it was not a mistake but a well-thought-out decision.

All variants of the Scorpio, except the entry-level one, come with micro-hybrid technology.

Mahindra is the second automaker after Toyota Kirloskar Motor Pvt. Ltd to halt hybrid launches. In an interview on 13 June, Shekar Viswanathan, vice-chairman and whole-time director at Toyota said the company will have to revisit its plans to introduce new models in India if the government does not reduce GST on full hybrids.

A spokesperson for Maruti Suzuki India Ltd said the company has made representations through industry body Society of Indian Automobile Manufacturers to the GST Council to lower GST rates on hybrids. It has not made any independent representation.

Interestingly, while tax burden on hybrids has gone up, that on electric vehicles has come down.

Environmentalists said that differential tax treatment to two environment friendly technologies sends out a confusing message.

“Hybrids being put in a high GST category is disappointing. It came from nowhere,” said Akshima T. Ghate, associate director, transport and urban governance at the New Delhi-based think-tank The Energy and Research Institute (Teri). Even a mild hybrid is more fuel-efficient than conventional vehicles, said Ghate, adding policymakers must remain technology-neutral and create an enabling tax regime that promotes clean technology.

“From the environment perspective, it’s time not to disincentivize any green technology,” she said.

Meanwhile, commenting on the impact of the lower GST rates on the broader passenger vehicle market, Goenka said GST bodes well for the auto industry and for SUVs in particular, which for long have faced an anomaly in duty structure.

The lower rates which bridge the price gap between a full-size sedan and a large SUV, is set to see buyers shift from cars to SUVs.

Abdul Majeed, auto practice leader at PwC India, said after GST, his firm has revised the growth projections for the SUVs—a segment that has been outpacing the car market. “We expect the SUV market to advance upwards of 19% in fiscal 2019—the year when full GST benefits kick in—from the earlier 13-15%,” he said.

Goenka said, after de-stocking of last couple of months, he expects dispatches to dealerships to rise sharply in the next couple of months as companies start building inventory ahead of the festive season. As against the normal two weeks, stocks across the dealerships fell to a week in June as companies squeezed dispatches to minimise loss on account of transition to the new tax regime, said Goenka.

An anticipation of a good festive season on the back of a normal monsoon will also add heft to the restocking trend, he said. Automakers in India count dispatches to dealers as sales.

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