Government’s decision to hike customs duty on vehicles that are brought to India in knocked down format has resulted in a showdown between bike manufacturers.
In the Union Budget, Finance Minister Arun Jaitley had proposed to raise customs duty on all completely knocked down (CKD) kits by 5 percent.
The CKD units which are imported from the US, Europe and other markets are put together at assembly plants in India before being sold through showrooms.
Customs duty on these CKD units have been increased to 15 percent from 10 percent earlier. This has dealt a body blow to bike manufacturers like Triumph, Harley-Davidson, Benelli, Hyosung and Kawasaki, who have set up assembly units in India to take advantage of the lower tax.
Some of these manufacturers are alleging that companies like Honda and Yamaha are getting undue advantage as they import their CKD kits from Thailand, which has a free trade agreement with India and that translates to negligible duty. Yamaha India, for instance, imports the R3 bike in CKD kits from Thailand.
However, the government did provide relief to import of completely built units (CBUs). Earlier, customs duty on imported bikes with engine upto 800cc was at 60 percent while those over 800cc drew 75 percent duty. As per the latest directive from the government circulated on Tuesday both are now reduced to 50 percent.
Italian bike maker Ducati, owned by Audi, is therefore, one major beneficiary of Tuesday’s move. The company does not assemble or manufacture bikes in India but imports them in a fully built form from Thailand and have an advantage from the duty cut.
Companies like UK-based Triumph, who has invested in a CKD plant in Manesar, Haryana claim the CKD duty hike is counterproductive to the country’s ‘Make in India’ plans and would affect any further investments in CKD operations. On the other hand, the cut in duty on CBUs to 50 percent will boost imports rather than local assembly.
Vimal Sumbly, Managing Director at Triumph Motorcycles India, said: “After the budget, this is a great initiative to cut import duties on CBUs, but for CKDs where local assembly is done in India, the import duties are increased by 5% and the FTA remains unchanged. We would urge the government to relook into this area.”
About 90 percent of all products sold in India by Triumph are of CKD nature. The company sells 16 motorcycles in the country with prices starting at Rs 7.3 lakh and going up to Rs 22 lakh (ex-showroom). US-based Harley-Davidson has 14 motorcycles on sale in India and operates an assembly plant in Bawal, Haryana. Harley’s India range start at Rs 5.17 lakh and ends at Rs 53.72 lakh.
Other premium and luxury brands like Polaris-controlled Indian, MV Agusta, Norton and BMW Motorrad are exploring options to set up a CKD plant in India.