Budget 2011: Auto companies in a fix over "New" CKD definition


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AMG

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Car and sports utility vehicle makers say they're taken aback by the Union finance ministry's proposal to bring locally assembled models into the same duty structure as imported units.

They say the move would cripple demand, following a substantial rise in vehicle prices.

Auto makers are scrambling to their industry body the Society of Indian Automobile Manufacturers (Siam), asking it to talk to the government for clarity on the matter.

"We do not know exactly what this proposal means to the industry and to us. There was absolutely no communication from the ministry on this. Unless there is some clarity coming in from Siam, we cannot comment on it further," said a spokesperson from BMW India.

The companies most likely to be hit are those in the premium segment such as Mercedes-Benz, BMW, Audi, Harley-Davidson, Nissan, Mitsubishi, Volkswagen, Audi, SkodaAuto and Toyota Kirloskar.

The finance ministry has said vehicle engines, gear boxes, transmissions or chassis imported into the country and strapped on to a locally assembled vehicle shall be excluded from the list of completely knocked down (CKD) units which attract a reduced duty.

The companies say this will mean these pre-assembled parts brought into India will attract import duty of more than 60 per cent, pushing the overall cost of a vehicle closer to that of an imported unit.


While a CKD unit attracts custom duty of 10 per cent, an imported unit attracts 60 per cent. Other taxes and levies effectively double the price of an imported unit from its original price.

A manufacturer imports and then assembles different parts of a vehicle to build a model through a local plant, classified as a CKD operation.

The investment required to set up a CKD plant is usually a fourth of the invesment required to set up a manufacturing plant.

Due to lack of standard clarity engines, gear boxes and other pre-assembled components were dubbed as parts that were later fitted to the main vehicle block.


While a CKD unit attracts custom duty of 10 per cent, an imported unit attracts 60 per cent. Other taxes and levies effectively double the price of an imported unit from its original price.

A manufacturer imports and then assembles different parts of a vehicle to build a model through a local plant, classified as a CKD operation.

The investment required to set up a CKD plant is usually a fourth of the invesment required to set up a manufacturing plant.

Due to lack of standard clarity engines, gear boxes and other pre-assembled components were dubbed as parts that were later fitted to the main vehicle block.

An official of a multinational automotive company stated, "By the very definition, a CKD operation means the unit has to be fully made or assembled in India; otherwise it is just a semi-knocked down (SKD) operation. The government is right in its stand and it has just done this to avoid anomalies."

Countered an executive of a luxury car company, "The government cannot just get up a change in the definition of a CKD operation and expect it to be implemented in such a short time. Drastic changes will have to be made at the plant which will require time. There should have been a mention of this proposal earlier."
Source: Rediff
 
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AMG

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The new duty structure levied on the assembled cars through Completely Knocked Down (CKD) route has already created a furore in the automobile industry and several parties have sent their request to review the duty structure. But now according to a report in The Economic Times, the government has turned down a fresh plea to roll back the differential duty structure for assembled vehicles. The demand which first came from the European Union was raised afresh by German Chancellor Angela Merkel during her trip to India last fortnight.
According to the report, Government officials, however, said that the finance ministry has clearly conveyed to EU as well as other ministries which have been lobbying against the new regime that the possibility of a review does not exist now. "After all, were are trying to plug a loophole that was resulting in the government losing several crores of rupees. So, there is no question of reviewing it," said an official, it was mentioned. Along with changing the definition of completely knock down (CKD) units, which are assembled in India, the government had increased the duty to 60 percent which was later cut to 30 percent. Pre-budget the tariff was 10 percent. Separately, officials said that in the free trade pact being negotiated with EU the government was unlikely to opt for an immediate tariff cut.
The report states that import duty on fully-built cars currently stands at 60 percent, which finally bulges to around 110 percent after the addition of counter-vailing duty (CVD), VAT and other levies. Industry body SIAM had made a strong pitch to the Commerce Ministry, opposing move to remove car imports from the negative list. The report stated that the stand has been taken keeping in mind the Autmotive Mission Plan (AMP) 2006-16 that aims to create new jobs in the automobile industry as well as bring in higher investments and latest technology. A softening of stand and lowering of duty could impact the objectives enshrined in the AMP, including the flow of technology. But while the Government's decision comes in as a relief to domestic players, the issue had virtually split the industry.
It can be recalled that while Mahindra & Mahindras automotive head Pawan Goenka , who is also the president of industry body SIAM, had opposed any move to cut the duty on imported cars, several members, mainly foreign luxury car makers such as Audi, Mercedes and BMW, batted for lower tariffs. players manufacturing in India, including some of the foreign players who manufacture here and operate in the lower-end of the market, spoke against lowering of tariffs, arguing that cheaper shipments into the country would disincentivise local manufacturing and will not result in job creation. The government has supported this point of view. The report states the AMP document explicitly cites the proposed India-EU FTA along with others such as Asean, South Korea and Japan where the protection would be available. In addition, AMP explicitly lists 77 items to be put on the negative list, and these include products such as engines and several components. These items would be excluded from any tariff reduction commitments that India may undertake, according to the report.
Source: Government not to roll back the new duty structure on CKD units - Yahoo! News
 
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