The Indian government has accused Kia Motors India of evading USD 155 million in taxes by misclassifying vehicle component imports, according to a Reuters report based on a document and two sources. The persons in the know told the news agency that this is very similar to the Volkswagen case, wherein a September 30, 2024, notice accused the German automaker of evading USD 1.4 billion in duties.
- Kia imported Carnival parts with “intent to discharge lesser” duty
- The company denies wrongdoing; deposits Rs 278 crore “under protest”
- It could have to pay up to USD 310 million if it loses the tax dispute
Kia India tax evasion issue is similar to Volkswagen case
Tax officials sent a confidential notice to Kia’s India unit in April 2024, pointing out alleged tax evasion of Rs 1,350 crore, as per a government notice reported by Reuters. According to the notice, Kia India has wrongly declared imports of components for Kia Carnival MPV’s assembly process.
Kia India has denied any wrongdoing. In a statement to Reuters, the company said it made “a detailed response, supported by comprehensive evidence and documentation to substantiate” its stand and that the matter was still being reviewed by the authorities. Kia India is committed to complying with all regulations and has “consistently cooperated with” authorities, it added.
Reuters could not elicit a response from the finance ministry and customs officials.
As per the 432-page notice, tax authorities found that the Carnival “car model was being imported in parts or components in separate lots” via different ports with the “intent to discharge lesser customs duty”. The company devised the strategy to ensure the imports “could not (be) detected by customs,” the government added in the notice issued by a customs commissioner in Chennai, Tamil Nadu.
Indian tax rules could require the Korean automaker to pay up to USD 310 million if it loses the dispute, or roughly double the amount evaded, due to penalty and interest, Reuters noted. Fully assembled imported cars currently draw a levy of over 100 percent.
Kia has deposited Rs 278 crore (USD 32 million) “under protest” as it continues to fight the notice, which is still proceeding, a government source told Reuters on condition of anonymity.
In 2022, authorities searched Kia offices and a factory in Andhra Pradesh and took statements from India executives, some of whom the document identifies as chief procurement officer Lee Sang Hwa and chief finance officer Kiho Yoo, Reuters reported.
During the investigation, Kia executives “changed their stance and have made efforts to mislead,” the notice stated, referring to statements on imports, manufacturing and taxation, the report added.
The notice accused Kia of importing over 90 percent of the parts for Carnival, constituting a car in completely knocked down (CKD) form, which attracts higher tax. During the probe, Kia’s website showed the Carnival MPV sold in India as being in “CKD” form, with 9,887 units retailed between 2020 and 2022, the tax notice said.
India’s head of indirect taxes, Sanjay Kumar Agarwal, told Reuters the law was clear, and some automakers were flouting it by not paying applicable CKD duties.
In the Volkswagen case, which came to light late last year, the automaker was accused of evading a higher tax of 30-35 percent that’s levied on parts imported in CKD form in a single shipment by shipping separate parts over days, making them eligible for a rate of merely 10-15 percent duty.
Hormazd Sorabjee
Anurag Chaturvedi
