Finance Minister Nirmala Sitharaman presented the 2023 Union Budget recently. There has been a revision in the customs duty for imported vehicles. Under the new rules, the tax rate has been hiked resulting in an increased cost for buyers of imported cars and SUVs.
Customs Duty on Completely Built-Up (CBU) vehicles
In the current tax regime, CBU vehicles with a CIF value of less than US$ 40,000 have a 60 percent customs duty. On top of this, a social welfare surcharge of 10 percent is levied. This makes the total tax equal to 66 percent.
Under the upcoming tax rules, there has been a removal of the social welfare surcharge, but the customs duty has been hiked to 70 percent. This will result in an increase of 4 percent on the basic price of an imported vehicle. Further, insurance and road tax are linked to the ex-showroom price of a vehicle, which will further go up. All in all, expect new car owners of such vehicles to shell out more.
Additionally, the tax rate on the CBU units of over US$ 40,000 has remained the same at 100 percent.
Increased Duty on Semi Knocked Down (SKD) vehicles
The Government has also proposed a hike of 5 percent on the customs duty of SKD vehicles. This means, the tax will go up from the current 30 percent to the new 35 percent. However, the current rate had an additional surcharge which has been done away with. Hence effectively, the rate has increased from 33 percent to 35 percent.
No change in Duty for Completely Knocked Down (CKD) vehicles
Promoting Make-In-India, the government has not hiked the rate for the CKD vehicles. They will continue to be taxed at 10 percent. However, it is still not clear if the social welfare surcharge of 10 percent would be levied on this. On one hand, since it has been eliminated from the other categories, it could mean a slight reduction in the duty of CKD units.
Will the car makers hike prices?
The hikes, though modest, are bound to increase the costs for the manufacture. However, as the increases are in single digits, it is possible that car makers could decide to absorb this extra amount and not pass on the hike to customers.
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