Speed bumps for luxury cars, SUVs, sports bikes

The assembled luxury cars and top-end bikes in India will become costlier, along with imported trucks, buses and tempos, as the finance minister has proposed doubling basic custom duty rate for engines and engine parts for all vehicles, 5 per cent increase each on SKD (semi knocked down) vehicles and trucks, buses and tempos imported through CBU (completely built up) route.

While the basic custom duty rate for engines and engine parts have been hiked from the existing levy of 7.5 per cent to 15 per cent, SKDs from the current 10 per cent to 15 per cent and CBUs from 20 per cent to 25 per cent. While finance minister said increasing the import levy was to incentivise Make in India programme, most auto honchos and experts said it was a dampener as the auto sector had begun picking up momentum after the twin glitches of demonetisation and rollout of the goods and services tax (GST) regime.

“With doubling of the basic custom duty (BCD) rate for engines from current levy of 7.5 per cent to 15 per cent, manufacturing cost of automobiles with imported engines is expected to see a steep rise,” said Abhishek Jain, tax partner, automotive sector, at EY India.

The costs are further being stressed with increase in BCD rates for various parts and accessories as well as seats, he said. While these would typically impact auto manufacturers in India who import parts of the vehicle, similar impact is expected to be sensed by those importing motor vehicles in CKD (completely knocked down) forms as well, Jain pointed out. The CBD increase is primarily to foster Make in India by automobile players in the country, he added.

“The biggest impact would be on the premium auto manufacturers, especially bus and truck makers, who import the motor vehicles in CKD or CBU condition,” Sandeep Chilana, partner, Shardul Amarchand Mangaldas.

Further, increase in customs duty on parts and accessories including gear boxes, engines etc. would also impact all other automotive players depending upon the percentage of import content in their supply chain, he pointed out.

“The increase in import duty on CKDs and CBUs may result in price increases and may have some impact on demand of super premium motorcycles,” said Subrata Ray, senior vice-president and group head, corporate ratings, ICRA.

German luxury carmakers such as Mercedes-Benz, BMW, Audi, Jaguar Land Rover, Volvo Cars, Toyota and luxury bike manufacturers would be among the most affected in the country.

“The increase in the basic customs duty of auto parts, accessories and CKD components varying from 5 per cent to 10 per cent, clubbed with the new social welfare surcharge at 10 per cent, at a time when the auto industry is reviving, is unfortunate, and comes as a surprise,” said Roland Folger, MD & CEO at Mercedes-Benz India.

Rahil Ansari, head at Audi India, said the budget was “disappointing and is against the spirit of partnership. As manufacturers, we have a core social responsibility towards our workforce and the dealer network.”

Michael Gonsalves