Import duty on luxury cars could be reduced

January 17, 2013: If the latest buzz over the slash in customs duties on luxury cars is anything to go by, high-end CBUs in India are slated for a price cut in the range of 30-45 percent. Recent remarks by the union heavy industries minister, Praful Patel, suggest that his ministry is keen on making duty cuts on luxury cars imported from Europe as a part of the India-European Union Free Trade Agreement (FTA).

The inclusion of automobiles in the European Union (EU) agreement has been a subject for discussion for over a couple of years now, with the EU expressing its reluctance to go ahead with the agreement without including automobiles. And if the proposal sees the light of day, it will bring major relief for the European luxury carmakers in India, especially the German trio of Mercedes, Audi and BMW. There is a likelihood that the reduction in duties may be extended to Japan and Korea as well. At present, India has trade agreements with these nations that do not include vehicles.

The new trade agreement may perhaps more than halve the duty on CBUs. Currently, a fully imported vehicle priced over $40,000 (Rs 21.58 lakh) attracts 75 percent customs duty. The new agreement proposes to bring down the import duty to 30 percent for luxury cars and further, allowing an even lower 10 percent duty for a certain ‘quota’ in return for additional SOPs.

The Society of Indian Automobile Manufacturers (SIAM) has opposed giving out any relaxation on import of vehicles from Europe, saying that this will discourage future investments in the country, further hampering local manufacturing and value addition, and resulting in a loss of local jobs.

Sugato Sen, senior director, SIAM, told Autocar India, Autocar Professional’s sister magazine, that with such a move, non-EU nations will be at a disadvantage. “If the 30 percent duty or the 10 percent duty on a certain quota gets approved then there would be a huge commotion in the industry. Our Japanese counterparts are asking for a level-playing field and due to the ongoing negotiations, car companies are now hesitating to invest in India,” said Sen. Car companies from Japan and Korea have made huge investments in India for greater localisation and such an agreement would not benefit them.

So far, the government has come out in support of SIAM’s stand that automobiles should not come under the purview of the FTA. But with increasing pressure from the EU, the government hasn’t completely scrapped negotiations and is likely to go ahead with the agreement. However, the heavy industries ministry is not in favour of 30 percent duty and is of the opinion that reducing the import duty to a maximum of 50 percent would be a good starting point.

Our sources close to the matter inform us, however, that it’s the Prime Minister’s Office which is actually exerting pressure for signing the FTA with the EU. The net gain to the Indian economy is thought to be quite positive. It is also understood that if the customs duty gets reduced to 30 percent, it would take a few years to implement. The EU’s actually pushing a complete waiver (zero percent) of duty on CBUs — perhaps at a later stage. But only time will tell if the government will agree to such a proposition.