Budget 2023: Setback for luxury car buyers, imported cars to attract more tax

The luxury car segment in India was in for a setback today as Union Finance Minister Nirmala Sitharaman presented Budget 2023, proposing new tax structure for vehicles manufactured abroad and sold in India. In a move that is seen to further promote local manufacturing, the Budget 2023 has proposed increased customs duty on imported cars, including electric vehicles. Customs duty on vehicles brought to India as completely-built units (CBU) will see a hike of 70 per cent in taxation, up from 60 per cent. Even semi-knocked down (SKD) cars, including EVs, will attract tax of 35 per cent, up from 30 per cent.

Luxury carmakers in India, ranging from Mercedes Benz, Audi to ultra-luxury carmakers like Porsche, Lamborghini will be affected by the new tax regime on imported cars.

Besides the cars brought to India through the CBU route, customs duty on electric vehicles in CBU form, other than with cost, insurance and freight (CIF) value of more than $40,000, has also been raised to 70 per cent. Previously, CBU and CIF units costing more than $40,000 or 3.0-litre petrol cars and 2.5-litre diesel vehicles used to attract 100 per cent customs duty.

The high tax rate is one of the reasons why Tesla has not entered the Indian market yet despite intense lobbying in the recent past. Other carmakers too had voiced their concerns over high taxation on imported models and wished the Centre to reduce the burden in this year's Budget. Santosh Iyer, MD and CEO at Mercedes Benz India had said, “We wish for reconsideration of the current import duties for EV’s to boost their demand, resulting in a faster acceleration for achieving the Government’s vision of a sustainable green mobility ecosystem in the country."

Mercedes Benz is among the luxury carmakers which also assemble their units in India, besides offering models through the CBU or SKD route. One of the recent examples are the new S Class and its electric version EQS. The German auto giant had launched both the locally manufactured units as well as the units manufactured abroad in the country. The locally manufactured units cost much less than the CBU or SKD units.

The luxury car segment in India in the past two years has seen significant growth, especially in the ultra-luxury segment. Porsche India had its most successful year in 2022 with respect to sales as the German performance carmaker delivered 779 cars, of which 399 units were the Cayenne SUV. Lamborghini also clocked its best year ever in India in 2022 as the Italian manufacturer sold 92 cars.