After a spell of uncertainty over tax rules, Mahindra and Mahindra Ltd has finally approved the design of a sub-4 meter compact SUV, with plans to sell it across the globe.
India’s largest utility vehicle maker dithered clearing the product while a debate raged in the industry over the future of sub-4 meter vehicles.
After waiting for four months for clarification on tax rules, it has now decided to go ahead with the car, which will be built on Ssangyong Motor Co.’s Tivoli platform, said a person with direct knowledge of the matter who asked not to be named.
Slated to be introduced in the Indian market two years from now, the car is being developed jointly by engineers from Mahindra in India and from Ssangyong in South Korea.
“We were waiting for four months for whether this sub-4 meter rule will stay or not. Honestly, we would have been very happy to make it 4.15 meters because that gives us lot more flexibility in what we can do with the product. And when it [did]not come, we kept it under four [meters]and we managed,” said the person cited earlier.
A spokesperson for the Mumbai-based company declined to comment on the story.
The debate on sub-4 meter vehicles picked up pace in the context of the roll out of the goods and services tax (GST).
Currently, passenger vehicles are taxed according to their length and engine size.
On small cars, the effective tax rate is 24.2 percent; for sedans with engines up to 1.5 liters, 36.2 percent; and those with larger engines 39.05 percent. The tax rate on premium sport utility vehicles and luxury cars works out to 42.5 percent.
The suggested tax structure under the model GST law proposes a differentiated duty structure where non-luxury cars will be taxed at lower rates and luxury cars at 28 percent. If the proposal goes through, the prices of small passenger vehicles are expected to drop.
Debates on four meters
However, the government has not decided on the fitment of GST in various slabs.
“When the sub-4 meter [rule]came, we were all up in arms. If you are on the right side of it, you get big benefits. If you are on the wrong side of it, you lose out badly. Just when Verito [a Mahindra sedan]came out [then Logan], this sub-4 meter rule came. Verito was 4.1 meters. So, suddenly we became very expensive. From that time till now, everybody has aligned to 3.995 [meters], and it is also becoming a global standard since these cars also get exported to other countries. I think to now change the goal post will not be right,” the person cited above said.
There is also a perception in the industry that the sub-4 meter rule will make it difficult for products to meet upcoming safety and crash testing norms.
“Crash tests have to be met. There is no question of compromise,” the person said.
“To meet the new crash test norms, you need approximately 150 mm [of additional length], so that much more has to come from somewhere else. Therefore, designing vehicles under four meters with the new safety norms is a challenge. There is no doubt about it. But, for that, to move the goal post again is not fair to those who have managed the challenge,” the person added.