Skoda Auto Volkswagen India has been served with a staggering USD 1.4 billion tax evasion notice by the Indian government. The notice, issued by the Office of the Commissioner of Customs in Maharashtra, alleges that the company wilfully evaded import taxes by misclassifying and misdeclaring car parts for its Skoda, Volkswagen, and Audi models.
Allegations and Investigation
The investigation revealed that Skoda Auto Volkswagen India imported almost entire cars in an unassembled state, which attracts a 30-35% import tax for Completely Knocked Down (CKD) units. However, the company allegedly paid a much lower duty of 5-15% by misclassifying these imports as individual parts. This practice reportedly allowed the company to evade higher taxes since 2012, resulting in a shortfall of USD 1.36 billion.
Skoda Auto Volkswagen’s Response
In response to the notice, Skoda Auto Volkswagen India stated that it is a responsible organization, fully complying with all global and local laws and regulations. The company is currently analyzing the notice and extending full cooperation to the authorities. A government official, speaking on condition of anonymity, mentioned that penalties in such cases could go up to 100% of the evaded amount, potentially bringing the total to USD 2.8 billion if found guilty.
Market Impact
The news of the tax evasion notice has already impacted Skoda Auto Volkswagen India’s market standing. The company’s shares fell by 2.13% on the Frankfurt stock exchange following the announcement. Volkswagen is a relatively small player in India’s car market, which comprises 4 million units a year, and has faced challenges in bolstering sales. The luxury segment, where Audi competes with BMW and Mercedes, has also been a tough battleground for the company.
Skoda Auto Volkswagen’s Future Outlook
The outcome of this investigation will be crucial for Skoda Auto Volkswagen India’s future in the Indian market. The company’s ability to navigate this legal challenge and maintain its operations will be tested. Analysts suggest that the company’s response and cooperation with authorities will play a significant role in determining the final penalty and its impact on the business.
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