India levies some of the highest import duties on cars in the world. For most cars, the import duty rate is 60%-100% or more of the car’s value. This makes imported cars very expensive for Indian consumers.
In this blog post, we will analyze the import duty structure on cars in India and its implications. We will also compare India’s car import duties with other countries.
Components of Import Duty on Cars
The import duty levied on cars in India has three main components:
- Basic Customs Duty – This is the primary duty charged on the import of cars. It is generally 10% of the car’s net value (value excluding shipping charges and insurance costs).
- Social Welfare Surcharge – An additional surcharge of 10% is added on top of the basic customs duty.
- Goods and Services Tax – GST is charged on the cumulative value of imported cars, including customs duty and surcharge. The GST rate on cars is generally 28%.
In total, these components stack up to make imported cars very expensive.
Import Duty Rates on Cars in India
Based on the above duty structure, here are the effective import duty rates levied on imported cars in India:
| Car Value | Import Duty | Total Tax Incidence | Effective Duty Rate |
|---|---|---|---|
| $20,000 | $8,960 | $11,760 | ~60% |
| $30,000 | $13,440 | $17,640 | ~60% |
| $50,000 | $22,400 | $29,600 | ~60% |
As evident from the above table, the effective import duty rate works out to ~60% irrespective of the car’s value. This makes imported cars extremely expensive for buyers in India.
Let’s try to understand the rationale behind such prohibitive import duty rates.
Why Import Duties on Cars are High in India
There are a few reasons why car import duties are kept exceptionally high in India:
- Protect local auto industry – The Indian government wants to protect and incentivize domestic automakers like Maruti, Hyundai, Tata Motors. High import duties discourage consumers from buying imported cars.
- Raise tax revenue – Import duties contribute significantly to India’s tax collections. It is an incentive for the government to keep them high.
- Discourage luxury purchases – India is still a developing economy. The government wants to discourage spending on expensive imported cars, which are seen as luxury purchases.
- Manage trade deficit – High duties restrict imports and help manage India’s perennially high trade deficit with the rest of the world. Imported cars contribute significantly to the import bill.
While governments have reasonable justification to impose high import duties, they do have negative consequences as well which we will discuss next.
Effect of High Import Duties
The high rates of import duties have several repercussions:
- Expensive cars – The biggest impact is on car prices, which are much higher than international prices even for domestically manufactured models. Taxes account for about 30-50% of car prices in India.
- Limited consumer choice – Not all car models are available in India. Manufacturers focus on small and mid-sized hatchbacks and sedans rather than bringing in premium or luxury models due to low demand.
- Older technology – In absence of adequate competition, the technology and safety standards of Indian cars lag behind global benchmarks. Models introduced in India are often a few generations behind the latest international models.
- Reduced innovation – High duties insulate domestic carmakers from global competition reducing the incentives for innovation, improving efficiency and enhancing manufacturing quality.
Thus, while import duties protect certain stakeholder interests, consumers and the automotive ecosystem suffer adversely. Getting this balance right is crucial but complex for policymakers.
Import Duty Structure in Other Countries
India’s import duty structure on cars is amongst the highest globally. Here’s a comparison with other countries:
| Country | Import Duty on Cars |
|---|---|
| India | 60% |
| China | 25% |
| Australia | 5% |
| United States | 2.5% |
| Singapore, Thailand | 0% |
Countries like China still have significant import duties to protect their automobile industry.
However, advanced economies like the US have very low tariffs. Singapore and Thailand are examples of zero-duty regimes.
Recent Changes in Import Duty
While car import duties have remained consistently high in India, we have seen some changes in recent years:
- Shift to value-based duty – Prior to 2017, India levied specific or fixed amount of duties per car. This has now changed to an ad-valorem rate levied as a % of car prices.
- Increased surcharge – The social welfare surcharge was increased from 3% to 10% in 2018.
- Removal of concessions – Tax concessions under free trade agreements for imports from certain countries like South Korea and ASEAN were discontinued in 2014 and 2018 respectively.
These changes indicate India’s policy direction of further strengthening the import barrier on cars rather than easing it.
Outlook for the Future
- Given India’s strategic focus on building domestic manufacturing capabilities, import duties are expected to remain high in the near future.
- However, if the domestic industry becomes sufficiently competitive globally, some rationalization can be expected.
- The premium car segment could see lower duties to enable introduction of latest tech models.
- Overall direction will stay towards self-reliance and enabling local production rather than imports.
- Some specific exemptions can get introduced for EVs, hybrids, fuel-efficient cars per environmental priorities.
In summary, for price-sensitive Indian buyers, imported cars seem out of bounds for now. However, we may see some duty relaxations on niche models. Local manufacturing remains the key focus area.
I hope you found this overview of import duty policy for cars in India informative! Let me know if you need any clarifications.
