High taxes on luxury vehicles in India, according to Mercedes-Benz, are limiting growth in the sector and the market considering its limited size is unlikely to expand rapidly, unless the tax structure is modified. However, after a 40% drop in demand due to the Covid-induced lockdown last year, demand has quickly recovered. “I believe the luxury market’s growth and overall footprint is too limited for any competitor in the industry. And, unless and until the taxation schemes adjust, we will remain a low-volume manufacturer,” said Mercedes-Benz India Managing Director Martin Schwenk.
Schwenk was speaking on the eve of the launch of the new Mercedes-Benz E-Class, which will cost between Rs 63.6 lakh and Rs 80.9 lakh (ex-showroom). According to industry figures, about 21,000 luxury cars were sold in the local market last year, down from 34,000 the year, before suggesting a 40% decline. Luxury vehicles are currently subject to the highest GST rate of 28 percent, plus a 20 percent GST cess on sedans and a 22 percent GST cess on SUVs, bringing the overall tax incidence to 48 percent and 50 percent, respectively. Schwenk confirmed that the company is based in India and that, it will continue to invest in new models. However, given the low volumes, additional investments to improve capacity are unlikely to be made right away. “At the moment, our investment is limited to model-specific investment, which is expected to incorporate new models. That is the key point here. We will continue to invest in new models, but the capabilities will not be significantly increased,” he added.
Mercedes-Benz currently has a production capacity of 20,000 units at its Chakan plant. In 2020, the company delivered 7,893 units.
