Custom duty increase: What does it mean for the consumer?

Photographer: Kuni Takahashi/Bloomberg

Union Budget 2023 has plenty for the automotive enthusiast and potential car buyer to understand. There are things both, good and bad, that can shape your decision to purchase your next car or two-wheeler.

Those subscribing to the new tax regime stand to have a bit more disposable income, thanks to the reworked tax brackets, which, for those earning up to Rs 7 lakh annually, now comes with an income tax waiver.

This is likely to boost sales in the two-wheeler and entry-level four-wheeler market, with the latter having shrunk by 28 per cent over the last three years due to an increase in purchasing costs.

But it’s the customs duty for completely built units (CBUs) of fully imported vehicles that saw a big change and has left many confused in terms of just which cars will see an increase in price and which won’t. So, you might want to take out your notepad for this one.

Now, as things stood, luxury cars that were imported as CBUs attracted 60 per cent in basic customs duty (BCD), if their cost, insurance and freight (CIF) charges at the car’s port of origin amounted to less than $40,000 or Rs 32.8 lakh. That basic customs duty amount has been increased to 70 percent. Cars costing over Rs 32.76 continue to attract 100 per cent customs duty, and so their price will remain unchanged. But, there is a very thin silver lining here.

All CBU imports, be it under or over Rs 32.8 lakh, attracted a 10 per cent social welfare surcharge. The surcharge was 10 per cent of the custom duty, which, in case of the vehicles attracting a 60 percent duty, amounted to 66 percent in additional taxes. This social welfare cost, for cars under $40,000 has now been waived off. This means the effective increase in cost will not be more than 4 per cent of the current cost. Which is why, brands like Mercedes-Benz have stated that the prices of cars like the EQB and the GLB SUVs will go up, as they’re brought in via the CBU route.

This however, doesn’t apply to luxury cars whose cost at the port of origin is more than Rs 32.8 lakh. Those will continue to attract 100 per cent customs, duty along with an additional 10 per cent social welfare surcharge.

That’s because the Maybach comes to the country in semi-knocked down (SKD) form and the customs duty for those has gone up from 30 percent to 35 percent. Once again, the social welfare surcharge of 10 percent of total customs duty has been waived off. So, the increase in duty will only be up to 2 per cent.

Now, with that out of the way, let’s look at some good news. That will be if you wish to purchase a locally-built or locally-assembled electric vehicle (EV). Firstly, the lithium ion cells, which we import a 100 per cent of, (???) will continue to enjoy custom duty reduction from 21 per cent to 13 per cent for another year.

But the bigger announcement comes in the form of total customs duty exemption on the import of specific capital goods and machinery required to manufacture lithium-ion cells for EVs. Which means that battery packs built in India are likely to get cheaper, resulting in cheaper EVs across both, the two- and four-wheeler segments.

That’s the long and short of how Union Budget 2023 affects you, the consumer. This year brought no GST relief for hybrids, which continue to be taxed at 43 percent, which means all-eyes are on locally-built EVs.