India to scrap tax breaks on cars

India Land Rover manufacturing facility at Pimpri in Maharashtra Image copyright AFP
Image caption Car makers say they hope the move will not hit their sales in the long term

Cars, bikes and consumer goods are set to get more expensive in India as the government plans to withdraw tax breaks in the new year, reports say.

Finance ministry officials told local media they would not renew excise duty concessions, which end on 31 December.

For a luxury car worth 5m rupees (£50,000; $80,000) the tax rise will add roughly 200,000 rupees to the cost.

Analysts say the cash-strapped government is trying to boost its finances through taxation.

The concessions were announced by the former Congress-led government in February to revive sluggish sales.

The Bharatiya Janata Party (BJP) government extended the tax breaks until the end of the year.

"The notification providing relief was meant to be temporary. We are not extending it," a source told the Times of India.

Officials said data showed the car sector had recovered in the past few months, and that the government "cannot hand-hold any sector for ever".

For small cars, the excise duty will rise from 8% to 12% - adding roughly 8,000 rupees to the price of an average small car.

For larger cars, the rate rises from 20% to 24%.

Car makers say they expect the sales to fall in the new year, but recover later.

"To the extent the excise duty goes up, car prices will go up," RC Bhargava, chairman of India's biggest car maker Maruti Suzuki, told Reuters news agency.

"It will temporarily affect sales. But I don't think it will have any long-term impact."

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