Finance Minister Nirmala Sitharaman has announced a host of measures which makes all automobiles including electric vehicles more affordable. She proposed at the Union Budget 2023 will reduce duties on cars making them a lot more accessible for the common mass.
“A simplified tax structure with fewer tax rates helps in reducing compliance burden and improving tax administration. I propose to reduce the number of basic customs duty rates on goods, other than textiles and agriculture, from 21 to 13. As a result, there are minor changes in the basic customs duties, cesses and surcharges on some items including toys, bicycles, automobiles and naphtha,” said the Finance Minister during her speech.
This move will help bolster the automobile sales numbers, even though 2022 saw one of the highest sales figures in the Indian automobile market by crossing the 3.85 million sales mark despite the industry facing a shortage of semiconductor chips.
Shashank Srivastava, Senior Executive Officer, Marketing & Sales, Maruti Suzuki India Limited, said, “The growth of the automobile industry has a high correlation with overall growth of the economy. Therefore, any measure which helps the overall growth of economy will benefit the automobile industry. The Union Budget for the year entails a lot of steps which will benefit the automobile industry. I am confident that the seven pointers- ‘Saptarishi’ for the Amrit Kaal announced by Hon’ble Finance Minister, Smt. Nirmala Seetharaman will give an impetus to the economy. With reduction in income tax, the disposable income of individuals across all categories is set to increase. The announcements regarding capex, will further have a positive impact on both the demand as well as supply side of economy. While in the short term, this will help generate demand, in the medium and long term it will help generate capacity when output gap decreases due to increased consumption. Investment in areas such as railways, increased agricultural credit target, policies on scrappage and encouragement of biofuel will also lead to a positive impact. However, we still need to watch out for factors such as inflation, bank interest rates, liquidity, and geo-political tensions, which may impact growth.”
No such luck for fully imported cars and electric vehicles, which are both completely built units (CBU) and semi-knocked down (SKD) units. The government has decided to increase the customs duties of CBUs worth less than $40,000 from 60 percent to 70 percent. This includes vehicles with less than 3000cc petrol engine and below 2,500cc diesel powertrain.
As per the budget document, customs duty on electric vehicles in CBU form, other than with cost, insurance and freight (CIF) value of more than $40,000, has also been raised to 70 percent from 60 percent. The budget also stated that customs duty on vehicles, including EVs, in SKD form will rise to 35 per cent from 30 per cent earlier.
Rajat Mahajan, Partner, Deloitte India explains, “The custom duty on imported vehicles with invoice value less than $40,000 has increased from 66 perent (incl cess) to 70 percent for CBUs and 33 percent (incl cess) to 35 percent for SKD. This can lead to increase in the end customer price within the premium and luxury segment. The ex-showroom price after loading top GST bracket for cars and accounting for margins, can go up by 1-2 percent if the OEM passes this in entirety. Similar impact will be seen in the imported (SKD and CBU) EVs. Global MNCs who are banking on buoyant consumer demand in the premium and luxury space will be effected. However, to ride on this revived demand most OEMs may decide to absorb this cost in the short run.
Currently, CBUs with CIF worth more than $40,000 or with engine capacity of more than 3,000cc in the petrol category and more than 2,500cc for diesel attract 100 percent customs duty.