NEW DELHI: Playing a party-pooper to the country's growing clout in the luxury car segment, a new provision in the Budget could well lead to a hefty hike, over Rs 8 lakh or more, in the prices of entry-level cars of the companies like BMW, Audi and Mercedes. In what appears to be a bolt from the blue for the luxury carmakers, mainly from the German stable, a change in definition of completely-knocked down (CKD) car is threatening to derail the softer import duty regime.
The provision, hidden in the memorandum explaining the provisions of the Finance Bill, has created panic among companies like Audi, BMW and Mercedes as they are scared that a jump in the prices of their India-assembled cars will hit demand.
"A definition for 'CKD unit' of a vehicle, including two-wheelers, eligible for concessional import duty is being inserted to exclude from its purview such units containing a pre-assembled engine or gearbox or transmission mechanism or chassis where any of such parts or sub-assemblies is installed," the Budget provision said.
In simple terms, this implies that auto companies that are doing CKD business in India with fully-imported pre-assembled critical parts like engines or gearbox or transmission cannot claim the lower 10% import duty on them as these will no longer be defined as CKDs. This would bring these vehicles on a par with fully-built units and thus slap a hefty 60% import duty on them, which would go up to 110% after the addition of counter-vailing duty, VAT and other local levies.
The models affected could be all entry-level luxury cars. From BMW, these would include the 3-Series and 5-Series sedans and the X1 SUV; from Mercedes the C- and E-Class sedans; and from Audi the A4 and A6 sedans and the Q5 SUV. Other companies who are having some CKD models will also be affected, and these include Toyota's Fortuner, Volkswagen's Jetta and Passat and Ford's Endeavour.
The affected companies have approached the auto industry body Society of Indian Automobile Manufacturers (Siam) for help. "A delegation of our representatives and Siam have visited the finance ministry to seek clarification on the matter," an official with one of the luxury carmaker said.
While none of them are ready to speak on record at the moment, they say in private that business would be severely affected if the provision is enforced. "Sales will be hit as affordability goes down. This kind of a provision, if it is there to stay, will be negative for further investments," said an official, requesting anonymity.
Sources said the German embassy has also been alerted on the matter and is actively looking into the issue. Comfortable prices of luxury cars and growing affluence in India have seen sales of luxury cars zoom. Companies like BMW, Mercedes and Audi have seen India emerge as one of their fastest-growing markets globally (over 70% growth), though volumes are still at a nascent stage. The total market for luxury cars was about 18,000 units last year, and is expected to double in the next two-to-three years if the lower duty regime stays. "However, all the projections would go haywire in case the new provision is enforced," an official said.
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The provision, hidden in the memorandum explaining the provisions of the Finance Bill, has created panic among companies like Audi, BMW and Mercedes as they are scared that a jump in the prices of their India-assembled cars will hit demand.
"A definition for 'CKD unit' of a vehicle, including two-wheelers, eligible for concessional import duty is being inserted to exclude from its purview such units containing a pre-assembled engine or gearbox or transmission mechanism or chassis where any of such parts or sub-assemblies is installed," the Budget provision said.
In simple terms, this implies that auto companies that are doing CKD business in India with fully-imported pre-assembled critical parts like engines or gearbox or transmission cannot claim the lower 10% import duty on them as these will no longer be defined as CKDs. This would bring these vehicles on a par with fully-built units and thus slap a hefty 60% import duty on them, which would go up to 110% after the addition of counter-vailing duty, VAT and other local levies.
The models affected could be all entry-level luxury cars. From BMW, these would include the 3-Series and 5-Series sedans and the X1 SUV; from Mercedes the C- and E-Class sedans; and from Audi the A4 and A6 sedans and the Q5 SUV. Other companies who are having some CKD models will also be affected, and these include Toyota's Fortuner, Volkswagen's Jetta and Passat and Ford's Endeavour.
The affected companies have approached the auto industry body Society of Indian Automobile Manufacturers (Siam) for help. "A delegation of our representatives and Siam have visited the finance ministry to seek clarification on the matter," an official with one of the luxury carmaker said.
While none of them are ready to speak on record at the moment, they say in private that business would be severely affected if the provision is enforced. "Sales will be hit as affordability goes down. This kind of a provision, if it is there to stay, will be negative for further investments," said an official, requesting anonymity.
Sources said the German embassy has also been alerted on the matter and is actively looking into the issue. Comfortable prices of luxury cars and growing affluence in India have seen sales of luxury cars zoom. Companies like BMW, Mercedes and Audi have seen India emerge as one of their fastest-growing markets globally (over 70% growth), though volumes are still at a nascent stage. The total market for luxury cars was about 18,000 units last year, and is expected to double in the next two-to-three years if the lower duty regime stays. "However, all the projections would go haywire in case the new provision is enforced," an official said.
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