More affordable CBU bikes!
Three weeks ago, the government made a shock announcement that it was reducing import customs on motorcycles above 800cc by up to 25 percent. This effectively lowered the rate from 75 percent to 50 percent. Naturally, this came as exceptionally good news to enthusiasts whose dreams of owning a proper big bike had been swept aside for years on account of the government’s crippling tax structure. Suddenly everyone’s cerebral calculator was whirring away, as a neat 25 percent was carved away from those constant mental forecasts of down-payments and loans.
Wait, shouldn’t they be even cheaper?
Soon after, BMW Motorrad was the first to announce price cuts across its range on account of the new tax structure. The price drops varied from model to model, but the maximum offered was about a 10 percent reduction. Harley-Davidson followed suit a few days later, and a few quick stabs at the keys of that trusty mental calculator revealed that, here too, the drops were between 7 and 11.8 percent. This led to feedback from many of our readers, stating they were unhappy with the fact that the manufacturers were seemingly not fully sharing the rewards with customers.
But here’s the thing. More manufacturers will reveal their updated prices in a few days and almost all of them will be in the same ballpark. The reason for this is that the tax structure on imported vehicles in India is such that customs duty only forms a part.
What we’ve got below are two tables showing the tax structure that would apply to a motorcycle being imported into India as a CBU under the previous tax structure and the new one.
Let’s crunch some numbers
For this calculation, we have assumed a motorcycle with an assessable price tag of Rs 5 lakh. This is the hypothetical price of the bike abroad and all applicable duties, taxes, surcharges and cesses will be applied on this number.
Now, in the tables below, you will also notice that there are different cess and surcharges under the old and new structures. That’s because the government used to charge a 2 percent 'Educational Cess' and a 1 percent 'Secondary and Higher Education Cess', Both of which were charged on the Basic Custom Duty amount (the amount of duty charged on the assessable price). So, in the first table, at the previous rate of 75 percent, the Basic Custom Duty charge on a motorcycle costing Rs 5 lakh was Rs 3.75 lakh. The collective 3 percent of both the cesses was charged on this amount of Rs 3.75 lakh.
However, in the recent 2018 budget, the government abolished the previous two educational cesses and replaced them with a new 'Social Welfare Surcharge' that was pegged at a much higher 10 percent. Removing 3 percent and adding 10 percent means you now have an additional 7 percent surcharge on the Basic Customs Duty.
But that’s not all. A huge hike in the price comes from IGST, or Integrated GST, which is charged at 28 percent on the combined value of the original assessable value (Rs 5 lakh) as well as the Base Customs Duty that applies on the assessable value and even all applicable cesses and surcharges.
With that out of the way, let’s have a look at those tables:
| Previous CBU tax structure | ||
|---|---|---|
| Tax* | Percentage | Amount |
| Assessible value | 5,00,000 | |
| Basic Customs Duty: (Ass. Value)* BCD % | 75% | 3,75,000 |
| Customs Educational CESS: (BCD)* Cess % | 2% | 7,500 |
| Cus Sec & High Edu. CESS:(BCD)* Cess % | 1% | 3,750 |
| IGST Duty: (Ass. Value+BCD+SWS)* IGST % | 28% | 2,48,150 |
| Total tax | 6,34,400 | |
| Landed cost | 11,34,400 | |
| New CBU tax structure | ||
|---|---|---|
| Tax* | Percentage | Amount |
| Assessible value | 5,00,000 | |
| Basic Customs Duty: (Ass. Value)* BCD % | 50% | 2,50,000 |
| Social Welfare Surcharge: (BCD)* SWS % | 10% | 25,000 |
| IGST Duty: (Ass. Value+BCD+SWS)* IGST % | 28% | 2,17,000 |
| Total tax | 4,92,000 | |
| Landed cost | 9,92,000 | |
| Difference in landed cost | 1,42,400 (13%) | |
*HS Code 8711
A quick study of the tables reveals that the landed cost of the CBU motorcycle in India now works out to be about 13 percent lower. Naturally, the final cost to customers will vary a little from manufacturer to manufacturer. This could depend on a number of factors, including how the manufacturers plan to spread the cuts across their range. They could also use this price change as an opportunity to adjust for rising costs in terms of transport, etc that may have occurred over time but haven’t been accounted in the motorcycle’s price.
In conclusion, that’s essentially how the numbers add up to show that a 25 percent reduction in import duty only results in a 10 percent or thereabouts decrease in price for the customer. Still, we aren’t complaining and we welcome more such reforms with open arms!
Also see:
Import duties on performance bikes reduced
Budget 2018 impact: Locally assembled bikes to become dearer