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‘Growth would be higher with a smarter tax policy’

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‘Growth would be higher with a smarter tax policy’

Roland Folger, Managing Director of Mercedes-Benz India is an ‘angry’ man because of the Government’s constant tweaking upwards of duties on luxury cars and he tells Kushan Mitra that 2017, despite strong sales for the German brand, was a ‘missed opportunity’. Excerpts:

 Last year when GST rates on luxury cars were cut, demand shot up and Mercedes-Benz India had a record year. Do you think the Government has made a mistake in raising excise duties on imported cars and parts?  And how do you convince policymakers that such raises are counter-productive?

We do that all the time and we say the same thing all the time, that is, if you are looking for additional tax revenue and if you are looking at us to create jobs you should not be doing what you are doing at the moment, which is raising taxes. You can do that but that will only end up inhibiting growth. See, India is significantly behind the bell-curve when it comes to luxury car demand. That is driven by these higher taxes, which while they do not kill the luxury segment and I do not want to scare anybody but the fact is that we would grow exponentially faster if tax rates were more rational.

 As the lower GST rates indicated last year…

We were in heavy discussions with Germany in that time, because we saw how prices went down across India, some states more and some states less, remember we passed on these state-specific prices in May last year. Nobody else did that. It took us a week to roll out these prices and ramp up production. This is also why we look at 2017 as a year of missed opportunity because then the Finance Ministry came back and said, ‘We’ve made a mistake.’

 But is it easy to tax luxury cars?

It is a knee-jerk reaction. It is not ideal let me put it this way. Because by doing that you are not making more taxes. It isn’t about more taxes on the same volume. And I’m sure the Finance Ministry knows this as well. You bring the cess down to 25 per cent I have promised them that I can double my volume. And you don’t need to look in your calculators about how much more tax you can generate.

 And if you double the volume, you could start exploring proper manufacturing…

We would double the jobs, and we are trying to get that through to people’s heads. We are staying that there is an upside even in the luxury segment, a luxury car is not a bad thing to have, it is not only a negative. And in the luxury goods segment you have the big benefit that it creates a lot more high-end jobs which you do not find in the mass-market because our specifications are so much higher usually. The sheer number of more dealerships we can set up even in more rural areas and all of these create jobs.

 Are your service engineers better trained than those of mass-market brands?

Yes. And we always overtrain, it is in favour of the state. If we need 200 people we train 500. We take the best and rest of them join other car companies as highly skilled workers.

 So what would you like to see?

Honestly, I don’t want them to diddle around with 2-3-4 percent of taxes. Instead, the government should look at getting rid of a complete block of taxes. And then have us commit to these higher numbers in return and as we sit here, I know that they will happen. Because even your ‘upper middle class’ as they are across the globe in a potential to buy luxury cars. But you need to get out of this solely protective stance that we need to ‘protect India’ and our market. You are not protecting anything. Nobody is going to buy three more small cars because he cannot buy a Mercedes. So you are not creating anything on top.

 So this is like ‘old-school’ protectionism?

You called it that, not me.

 
 
 
 
 

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