India raises tax on imported cars, motorbikes, including EVs in a bid to boost “Make in India” scheme

All vehicles with a landed cost of less than $40,000 will be taxed at 70%, up from 60% earlier, a move analysts say could impact demand. The landed cost includes the vehicle’s price tag plus insurance and freight costs.

Import tax on all semi-knocked-down cars – where major parts are imported separately and the final vehicle is assembled in the country – will be raised to 35% from 30%.

The tax hikes, part of the government’s federal budget which was presented on Wednesday, come into effect from April 1.

Taxes on automobiles in India, the world’s third-largest car market, rank among the highest globally, drawing criticism from companies such as Tesla Inc which shelved plans last year to enter the market because of high tariffs.

Carmakers including South Korea’s Hyundai Motor and Kia Corp, Germany’s Volkswagen AG, Skoda Auto and Japan’s Toyota Motor Corp sell imported cars in the country, with some also selling electric models.

India’s EV market is small – making up about 1% of total car sales in the country in 2022 – but growth has been rapid, with domestic carmakers Tata Motors and Mahindra & Mahindra as well as global rivals BYD and SAIC’s MG Motor lining up new launches. Global carmakers who are banking on buoyant consumer demand in the premium and luxury space will be affected, Rajat Mahajan, partner at Deloitte India said, adding that some companies may absorb this cost to benefit from the recent surge in demand.

India has seen strong rebound in car sales, which rose 25% to 3.8 million in 2022. Growth in premium and luxury cars was higher, with carmakers like Mercedes-Benz and BMW reporting record sales in the country.

Toyota’s luxury brand Lexus has warned that based on the increase in taxes, the carmaker may have to “adjust the prices” of some of its models.

“We hope to have better clarity once we study the overall impact of the same,” Lexus’ India president, Naveen Soni, said.