Budget 2023: Govt Increases Tax on Imported Automobiles, Prices to Go Up

Finance Minister Nirmala Sitharaman has revealed that increased tax will be levied on importing cars to the country, thus making CBU cars expensive.

At the 2023 budget session, the tax on imported cars is increased, resulting in a price hikefor cars coming to our shores via the CBU (Completely Built Unit) routes. Well, a host of brands, like Range Rover, Mercedes-Benz, Volkswagen, Skoda, Audi, Porsche, BMW and more import their cars to India in CBU form. With the new taxation norm, a rise in the prices of such models will be seen. Customs duty on vehicles in completely built units (CBUs) costing less than USD 40,000 or with engine capacity less than 3,000 cc for petrol-run vehicles and less than 2,500 cc for diesel-run vehicles has been raised from 60 per cent to 70 per cent, as per the Budget document.

Similarly, customs duty on electrically operated vehicles in CBU form, other than with cost, insurance and freight (CIF) value of more than USD 40,000, has also been raised to 70 per cent from 60 per cent.

The Budget also outlined that customs duty on vehicles, including electric vehicles, in semi-Knocked down (SKD) form will rise to 35 per cent from 30 per cent earlier.

Already, cars imported as CBUs with CIF more than USD 40,000 or with engine capacity more than 3,000 cc for petrol-run vehicles and more than 2,500 cc for diesel-run vehicles attract 100 per cent customs duty.

"The Government has proposed to increase the duties on completely built units (CBUs) to 70 per cent from 60 per cent earlier.

"This is unlikely to have a material impact as most of the luxury cars are now assembled in India, barring the top-end variants. Nonetheless, an increase in customs duty will further aim to promote domestic manufacturing going ahead," Icra Senior Vice President & Group Head Corporate Ratings Shamsher Dewan said.

On the other hand, Sitharaman proposed "to further provide impetus to green mobility, customs duty exemption is being extended to import of capital goods and machinery required for the manufacture of lithium-ion cells for batteries used in electric vehicles.

The Finance Minister also noted that replacing old polluting vehicles is an important part of "greening the country's economy".

"In furtherance of the vehicle scrapping policy mentioned in Budget 2021-22, I have allocated adequate funds to scrap old vehicles of the Central Government," she said.

States will also be supported in replacing old vehicles and ambulances, Sitharaman added.

"Multiple proposals in the Union Budget are seen favourable for the automotive sector. A sharp 33 per cent increase in capital investment outlay, identification of critical transport projects for first and last-mile connectivity, and relaxation in personal tax rates shall aid the demand for the auto sector," Dewan stated.

Thrust on green energy continues with specific budgetary allocation for old vehicle scrappage, energy transition, and viability gap funding for battery storage solutions with 4000 MWh, he added.

Customs duty exemption on the import of capital assets for manufacturing lithium-ion cells for batteries used in electric vehicles shall facilitate EV ecosystem development and aid faster penetration, Dewan said.

"An increase in the duty rates on compounded rubber from 10 per cent to Rs 25 (or) 30 per kg, whichever is less, is a challenge for tyre industry, which significantly depends on imported rubber," he added.

With agency inputs