Budget 2018: Increase in custom duty hike likely to make Mercedez, BMW, Jaguar cars costlier

Presenting the Union Budget 2018, Finance Minister Arun Jaitley called for a 5 per cent increase in custom duties levied on locally assembled and fully imported vehicles. This would be the second blow to premium auto sector which was burdened with additional cess under GST in December last year.

Jaitley has suggested in Budget 2018 that the custom duty levied on vehicles imported through completely knocked-down kits (CKD) route should be increased from 10 per cent to 15 per cent. CKD car or bike is imported in the form of separate parts, like engine, transmission, and assembled later. He also suggested custom duty on engine components used in CKD vehicles to be increased to 15 per cent.

The same on vehicles imported as completely built unit (CBU) will be increased from 20 per cent to 25 per cent. This will push the overall import duty which presently amounts to 180 per cent. A CBU vehicle is imported from its place of origin with all components assembled together as a complete vehicle.

This move is likely to affect the global auto players like Mercedes Benz, Audi, BMW, Jaguar Land Rover which operate assembly facilities in India. Two-wheeler companies like Harley Davidson and Triumph will also face troubles if the increase in custom duty is put into effect.

The increase in taxes is meant to help with domestic value addition in the auto component sector and give a leg-up to the Make in India initiative.

"There is substantial potential for domestic value addition in certain sectors, like food processing, electronics, auto components, footwear and furniture. To further incentivise the domestic value addition and Make in India in some such sectors, I propose to increase customs duty on certain items," Jaitley said during his Budget speech in Lok Sabha today.