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Luxury cars to become costlier on rise of customs duty
May, 09th 2011

Car lovers in India, looking for a touch of luxury, will soon have to shell out more to drive home their cherished premium four-wheelers. Foreign luxury cars will turn more expensive in India as global auto majors plan to raise prices following an increase in tax on locally assembled cars.

Mercedes, BMW, Audi, Land Rover and Renault will soon raise prices of cars assembled in India by up to Rs 10 lakh to pass on the cost increase due to higher tax to customers. The Indian government recently raised customs duty on foreign luxury cars that are assembled in local facilities to 30% from 10%.

"We are looking at increasing prices for one of our major models in the next few weeks. We would be paying high tax on one of our cars with a high proportion of pre-assembled components. The new policy regulation has forced us to bring in new prices soon," said Peter Honegg, chief executive officer and managing director, Mercedes Benz India .

The company plans to raise prices of its top-end S class sedan by up to Rs Rs 8 lakh. The S class sedan falls in the price range of Rs 84.3 lakh to more than 1 crore. The new lot of S class sedans produced in April will reach the showrooms in 4-6 weeks and will carry a revised price tag, he said. The company is assessing the quantum of price increase keeping in mind the higher duty.

Audi, BMW, and Land Rover, will also increase prices of its luxury cars assembled in India, company executives said. These cars are in the price range of Rs 30-90 lakh.

The increase in tax will hit premium car sales in India, industry experts said. Luxury car sales doubled to 15,000 in fiscal 2010-11 from a year earlier driven by rising incomes and easy financing. The nominal customs duty on luxury cars enabled competitive pricing.

"We are studying the government policy and will take appropriate decisions to amend our production strategy suitably," said Michael Pershke, chief executive officer, Audi India . The German luxury carmaker's A4 and A6 sedans and sports utility vehicle Q5 may incur 30% tax.

French carmaker Renault is likely to increase prices of its sedan Fluence by up to Rs 2 lakh, a company executive said. Fluence will be launched in India later this month from its Chennai facility. "We are also in line with the auto industry in the higher tax bracket of 30% that will be reflected in our price line," said a company spokesperson.

Land Rover's sports utility vehicle Freelander 2, recently launched in India and expected to compete with BMW X1 on pricing, will also come under the revised tax structure. The Freelander, assembled at parent company Tata Motors's facility in Pune, will cost Rs 3-5 lakh more than the originally envisaged price tag.

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