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Foreign car-makers assembling vehicles in India are likely to be affected by the Finance Minister, Mr Pranab Mukherjee's announcement on Tuesday that the customs duty for imports of completely knocked down (CKD) kits of cars with pre-assembled engines and transmissions would be increased to 30 per cent from 10 per cent.
This was a clarification on the Union Budget 2011-12 announcements this February and following a customs notification, which said that all CKD imports with pre-assembled power train would not continue to avail the concessional 10 per cent customs rate.
Instead, they would be liable for a 60 per cent duty rate which is charged on imports of fully built cars.
The new duty rate, effective from April 1 this year, is expected to impact many models including the BMW 3, 5 Series and the X1, Mercedes-Benz's C-Class, E-Class and the S-Class.
It may also affect others such as Tata Motors which plans to assemble Jaguar and Land Rover models in the country from such kits.
“Companies have to import cars as CKDs as the low volumes do not justify the set up of a full manufacturing operation. If this is implemented, it will be an issue for the industry.
“Many companies will have to change their business strategy,” said a senior official from industry body, Society of Indian Automobile Manufacturers.
He added, “We have only heard a part of the announcement and will react once we see the notification. SIAM had also requested for a clarification of the definition of CKDs. We're hoping there is more on that.”
According to Government officials, the aim behind increasing the duty rate on CKDs is to promote local manufacturing, which would translate into higher job creation and investments in the country.
While a BMW official said the company could only comment when a proper notification is available, a Mercedes-Benz statement said, “We have just heard about the latest communication from the Ministry of Finance pertaining to a clarification on the CKD definition change announced in the Union Budget 2011-12. We are evaluating the same internally on a case-to-case basis and will prepare a final assessment of the same.”
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