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Price, sales tax hike to dampen car sales - Views on News from Equitymaster
 
 
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  • Jan 19, 2000

    Price, sales tax hike to dampen car sales

    Recent price hikes combined with an increase in sales tax (to a uniform 12%) will depress demand for passenger cars in the current year.

    Car majors like Maruti, Hyundai have upped their prices, and other manufacturers are expected to follow suit. The situation was aggravated further by a rationalisation in the sales tax structure to a uniform 12%.

    According to news report appearing in a leading business daily, dealers are already complaining of depressed demand in January with sales in some regions falling by more than 50% over the level in December 1999. A lot of consumers advanced their purchases in December 1999 to avoid the higher price tag in January 2000. Historically, consumers postpone their purchases to January to avail of newer models, price cuts. This trend was reversed in the current year.

    Car manufacturers are likely to see lower sales, at least in certain states like Gujarat, Madhya Pradesh, which had sales tax of around 4%. The transition from 4% to 12% will hit sales in these states more than other states. States like Maharashtra, which had 12% sales tax from the beginning, will witness only marginal decline in sales.

    But on the whole, sales will be impacted only in the short term, and will return to normal levels over a period of time. It is unlikely that consumers will stay away for long from the new models that are being launched at enticing prices.

     

     

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