A used car in Punjab is going to cost you more, with the state Excise and Taxation Department levying tax on the sale of pre-owned cars. Instead of imposing Value Added Tax, the state government has put pre-owned cars into the special category and levied a flat rate of tax on sale of second hand cars.

The department has levied Rs 3,000 tax per car on sale of second hand car with capacity less than 1,000 cc and Rs 5,000 per car on sale of pre-owned cars having capacity more than 1,000 cc, an official of the Punjab Excise and Taxation Department said today.

"We want to tap available source to collect tax, though revenue from pre-owned cars may not be much ...," Punjab Excise and Taxation Commissioner A Venuprasad told PTI on Monday.

The departments initial focus will be on first tapping leading car players like Maruti, Mahindra & Mahindra by taxing their pre-owned cars sale.

Later on, a special drive may be launched to ask second hand car dealers operating in unorganised market to register themselves with the department to pay tax on sale of pre-owned cars, another official informed.

Punjab used to levy tax on pre-owned cars by way of imposing VAT on value of cars but it withdrew it in year 2006.

Second hand cars market in Punjab has grown manifold in past several years, with the growing tendency among affluent people for disposing of cars after usage of one or two years. Among several places, Ludhiana, Jalandhar are among the biggest markets for second hand cars in Punjab.

The total size of second hand cars market could not be ascertained because the market is largely dominated by unorganised players but players like Maruti, which is into pre-owned car business, is selling 20-25 cars per month through its True Value outlets in Punjab.

Dubbing the levy of tax on second hand cars as unjustified and unwarranted, second car dealers said new tax would hit their business hard.

"Certainly, sales of second hand cars will be hit as tax will affect the pocket of a buyer," Ludhiana based Maruti car dealer, Naresh Malhotra said.

"It is near impossible to convince a customer to pay any tax on buying a second hand car in a situation when he is reluctant to pay even our commission," second hand car seller Raju Aggwarwal said.

Second hand car seller charges commission to the tune of Rs 2,000-3,000 per car.

Questioning the rationale behind tax on second hand cars, he said, "when government is already imposing VAT on sale of new car then what is the point in charging another tax on sale of same car."

Car dealers also chastised the state government for not taking their view before imposing tax on pre-owned cars.