Imported SUVs, cars could get pricier as Budget 2023 raises customs duty

Presenting the Union Budget 2023, Finance Minister Nirmala Sitharaman announced changes in customs duty that could affect prices of imported vehicles.

Under the previous tax structure, completely built up (CBU) vehicles that had a Cost Insurance and Freight (CIF) value below USD 40,000 attracted a 60 percent customs duty and a Social Welfare Surcharge (SWS) of 10 percent of that, which meant an effective tax rate of 66 percent in total. Under the new proposed tax structure, the government has done away with the surcharge but has hiked the overall custom duty to 70 percent.

1. Customs duty on Semi Knocked Down vehicles hiked to 35 percent
2. Duty rate on CKD vehicles remains unchanged

The government has also hiked the duty for Semi Knocked Down (SKD) vehicles from 30 to 35 percent, however, here too the previous surcharge has been done away with. Thus, while under the old structure the effective rate was 33 percent, the new rate stands at 35 percent.

Coming to completely knocked down vehicles (CKD), the duty rate remains unchanged at 10 percent, and the import duty on CBUs above USD 40,000 has also not been changed (100 percent). Sources say that the 10 percent social welfare surcharge could be eliminated, which could thus lower the overall price, but clarity is still being sought on this. 

In a statement, Santosh Iyer, managing director & CEO, Mercedes-Benz India, said that the change in basic customs duty will impact pricing of some of their models like the S-Class Maybach, which, as an SKD, will see a rise in prices. CBUs like the GLB and EQB will also see a hike on account of the revised tax structure for cars below the USD 40,000-mark. However, he also stated, “As we locally manufacture most of our models, this will not affect 95 percent of our portfolio.”

Hyundai, who recently announced prices for its Ioniq 5, says the prices for its flagship EV will remain unchanged and that’s due to it being brought into India as a CKD. However, its cousin, the Kia EV6, is likely to see a hike given that it comes to India as a CBU.

The actual impact of the raised customs duty is still being worked out, and while some manufacturers will pass on the hike, others might choose to absorb some or all of it given that the overall effective hike will be in the low single percentage point.