Addressing auto industry representatives at a SIAM conference, Finance Minister P Chidambaram ruled out a nationwide goods and services tax in near future to substitute excise, service tax and VAT.
The minister assured the industry that he would look into their demand of coming out with a policy for phasing out old commercial vehicles, as also to have a "second look" at fringe benefit tax rules and invited suggestions from industry chambers Ficci, CII, Assocham and others.
Sharing the concerns of auto industry over high tax rate, Chidambaram said, "I am aware that cars are classified as luxurious items like liquor and tobacco. We have to revisit the rate of taxation to keep pace with the developments in the auto industry."
Automobiles attract the highest excise duty of 24 per cent coupled with 1 per cent cess for natural calamity, 2 per cent education cess and a 12.5 per cent auto cess.
Responding to SIAM's demand, Chidambaram said government would also consider phasing out of old buses and trucks while revisiting the tax structure. "Most of them are pathetic. We need to upgrade our commercial vehicles. We must put an age limit. You must tax them heavily so that they can't be used," he said.
He was critical of the truckers, who tend to retain old vehicles even if they are not fit to be run on roads. "Our trucks are like wine -- they become better as they grow older," he said in a lighter vein.
"You (auto industry) are on a growth path. All indicators point out that this industry is growing at an exponential rate. We will see the entry of a lot of auto companies in the next couple of years," Chidambaram said, while assuring that UPA would continue the reform process.
Chidambaram, who approves the FDI proposals of foreign companies, said that global auto majors like BMW, Volkswagen, General Motors, Toyota, Hyundai and Suzuki lining up new projects and expansion plans in India.
Tatas plans to roll out a small car costing only Rs 1 lakh in the next three years. Toyota is planning to foray into small car and plans a $100 million investment for another plant in India.
GM plans a small car as well as a compact car, while Skoda would come with variants in high end segment. GM along with Hyundai and Suzuki wants to make India the export base for their small cars.
BMW also plans to enter India and would set up a plant in Tamil Nadu, while Volkswagen has chosen Andhra Pradesh for its project.
Promising more funds for research and development, Chidambaram said the ministry would look into the renewal of 150 per cent depreciation allowance for R&D in auto segment.
As part of improving R&D facilities, he said government had approved Rs 1,700 crore (Rs 17 billion) for coming up with a centre for testing and modernisation of auto components, while the Budget provided Rs 100 crore (Rs 1 billion) to Indian Institute of Sciences.
Chidambaram did not subscribe to the notion that auto sector has reached a "saturation point" saying auto density was 7 per 1,000 lower than 12 in Pakistan and Sri Lanka.
Instead of putting restricting the growth in automobiles, he said, "The answer is to build more roads. With more roads you will have more townships."