Budget 2018 impact: Locally assembled cars to get more expensive

Eyeing a premium model from a foreign carmaker? Chances are you’ll have to pay more for one, in the very near future. As per the proposals made in Budget 2018, locally assembled and fully imported cars will see an increase in taxation.

Cars which are locally assembled in India are likely to see an increase in cost of between 3 and 5 percent as Finance Minister Arun Jaitley proposed an increase in customs duty on motor vehicles brought to India via the CKD (completely knocked down) route. As per the proposal, the customs duty on imported engine components could be raised from 7.5/10 percent to 15 percent. There could also be a hike in the duty on the vehicle parts that are an element of the CKD kits – from 10 percent to 15 percent. The move is set to impact carmakers such as Audi, BMW, Mercedes-Benz and Jaguar Land Rover – those which have dedicated assembly facilities in India.

Cars brought to India in completely built up (CBU) or fully-imported form could also get pricier. The government has made a proposal for a rate hike on one section of customs duty on CBUs from 20 percent to 25 percent. This move could drive up the total import duty; which currently stands at an already steep rate of over 180 percent.

The finance minister's rate hike proposal met with strong disapproval from luxury carmakers.

Country's leading luxury carmaker Mercedes-Benz said the increase in customs duty will reverse the growth trend in the segment. “The increase in the basic customs duty of auto parts, accessories and CKD components is unfortunate, and comes as a surprise. It will highly restrict the growth of the luxury car industry," said Roland Folger, MD & CEO, Mercedes-Benz India. 

Rahil Ansari, Head, Audi India said the budget lacks focus towards the luxury segment. "Increase in custom duty is going to definitely affect the prices again, which will further confuse the customer The Union Budget 2018-19 is disappointing and against the spirit of partnership," Ansari said, adding that lack of measures towards government's ambitious E-mobility project is surprising.

The decision to impose a higher customs duty has been taken to promote the government's Make in India initiative, as it sees a significant potential for domestic value addition within the auto components sector, according to Finance Minister Arun Jaitley.

Sugato Sen, Deputy Director General, SIAM told Autocar India that the move will affect the entire auto industry as most carmakers source components from abroad. "The hike in customs duty on CKD auto parts and components was not anticipated," he said.

The term Completely Knocked Down (CKD) is referred to vehicles whose engine or gearbox or both the units are separately imported and are assembled locally into the body shell while CBUs are brought into the destination country as is from the factory of origin.