Tamil Nadu government is upset about losing money on luxury cars

Tamil Nadu government is upset about losing money on luxury cars
  • The government of Tamil Nadu currently imposes 10% motor vehicle tax on four wheelers below ₹10 lakh and 15% on vehicles above the said amount.
  • Tamil Nadu accounts for almost 10% of all vehicles registered in India, according to the Ministry of Road Transport and Highways.
  • A car with a price tag of ₹10 lakh would cost over ₹12.8 by the time you can drive it out of the showroom.
The Tamil Nadu government recently released a white paper ⁠— and the state’s Finance Minister Palanivel Thiagarajan echoed the sentiment ⁠— that complained that the tax on motor vehicles in the state had not changed in nearly 15 years.

The statement only hints towards one direction, that the government has finally taken notice of the matter that had been lingering around for the past decade and a half. The state — which is also home to the automobile hub of India, Chennai — may also take some action to fix this in the near-future.

The small to midsize-car owners and makers of cars ranging upto ₹20 Lakh — may still be able to sail past these potential policy updates. But the risk is much higher for luxury car owners and makers like Mercedes, BMW and any other car maker that sells cars at more than ₹20 lakhs a unit. This could even include the high-end cars from Indian auto giants like Tata Motors and Mahindra.

If the Tamil Nadu government decides to act on the white paper, it would make at least one in every 10 cars sold in the country more expensive, at a time when car sales have been slow for over three years.

Tamil Nadu is the third largest state in terms of vehicle registration , according to data shared by the Ministry of Road Transport and Highways. As per the data, Tamil Nadu accounts for 10% of vehicles registered between 2017 to August 12 of 2021.


Notably, Tamil Nadu currently charges 10% motor vehicle tax on vehicles below ₹10 lakh and 15% tax rate on vehicles above ₹10 lakh.

The current car taxation policy in Tamil Nadu:
Cost of car₹10,00,000
Motor Vehicle Tax in Tamil Nadu (at 10% rate)₹1,00,000
GST* (at 18% rate)₹1,80,000
Road Safety Tax₹1500
Service Charge₹200
Total ₹12,82,300
*GST ranges between 18-28% based on the size and engine power of the car. The government charges 28% GST or above on sports utility vehicles (SUVs) and luxury cars.

As it is visible above, a car with a price tag of ₹10 lakh would be worth ₹12,82,300 by the time you can drive it out of the showroom. This also includes the Goods and Service Tax (GST) imposed by the Union government and split with the state government.

Now, Finance Minister Thiagrajan’s worry is that the state is losing revenue and many people from neighbouring states like Kerala and Karnataka are registering their cars in Tamil Nadu because the taxes are lower.

The Tamil Nadu government expects to collect a little over ₹6500 crore taxing new motor vehicles by FY22, Finance Minister Thiagarajan said in his state budget speech this week. He also added that the government expects a 12% growth rate in such revenue in each of the next two years.

Tax on four wheelers in Tamil Nadu and neighbouring states:
StatesFor vehicles four wheelers upto ₹5 lakhs For purchase value upto ₹10 lakhsFor vehicles between ₹15-₹20 lakhsFor vehicles above ₹20 lakh
Tamil Nadu10% of purchase price10% of purchase price15% of purchase price15% of purchase price
Kerala 6% of purchase price8% of purchase price10% of purchase price20% of purchase price
Karnataka13% of purchase price14% of purchase price17% of purchase price18% of purchase price

While the Tamil Nadu government is talking about taxing motor vehicles in general, the data shows that the multiple tax slab schemes been a major point of difference when compared to Karnataka and Kerala.

The multiple tax slabs have allowed both Kerala and Karnataka government to charge much higher motor vehicle tax rate to customers buying luxury cars above ₹20 lakh.

The other interesting bit here is that while Karnataka taxes motor vehicles more, it still ranks right after Tamil Nadu in terms of the number of vehicles registered in the state. This shows that the tax alone may not be the determining factor.

As per the data shared by the Ministry of Road Transport and Highways, Karnataka earned ₹49,782 crore and Tamil Nadu earned ₹44,031 crore in the same period. Kerala, despite not being mentioned as one of the top five states in terms of vehicle registration, was the fifth biggest collector with ₹30,950 crore revenue between the same time frame.

Meanwhile, Tamil movie stars Vijay and Dhanush had recently approached the courts seeking tax waivers on their imported luxury cars. The courts rejected the plea.

A slowing economy, lack of mobility due to lockdowns and increased work from home, has kept car sales in India on the slow lane for a while now.

Tamil Nadu government is upset about losing money on luxury cars
BI India

Car sales growth rate witnessed a 21-year-low dip in December 2019, according to data shared by the Society of Indian Automobile Manufacturers (SIAM). COVID-19 further resulted in shutting down of production at original equipment manufacturers (OEMs), disrupted supply chain and reduction in consumer demand.

Higher duties in states like Tamil Nadu could deter buyers even more.

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