Government to drop the 60% import duty on CKD kits to 30%

The 2011 Union Budget was followed by big fuss in the Indian automotive industry, when the fiscal annual budget stated a proper definition for Completely Knocked Down (CKD) kits and more importantly proposed a hike to 60% import duties on CKD kits from the current 10%. It came as a significant jolt to major international car and bike makers in the country who have been raking in sizeable sales numbers in the premium segment, thanks to the 10% CKD duty structure. While presenting the 2011 Union Budget, Finance Minister Pranab Mukherjee introduced a comprehensive definition for ‘CKD kits’ which was not clearly defined until now under the Indian Customs Law or any other Indian Laws.

Clearing the haze of ambiguity regarding the classification of ‘CKD’ units, the Budget document defining Completely Knocked Down kits reads – "A definition for ''CKD unit'' of a vehicle, including two-wheelers, eligible for concessional import duty is being inserted to exclude from its purview such units containing a pre-assembled engine or gearbox or transmission mechanism or chassis where any of such parts or sub-assemblies is installed." Along with the new definition, there was another bill submitted to the government that demanded a hike in the import duties for CKD unit’s from current concessional 10% to a substantially high 60%.

After strong opposition from all auto-makers and the Society of Indian Automobile Manufacturers (SIAM) with regards to the hike in the import duties for CKDs and long standing discussions between the companies and the government on the issue, Finance Minister Pranab Mukherjee yesterday announced the revised duty structure on import of CKD units as well as a faintly revised and manufacturer-friendly definition of CKD kits. The government has slashed the proposed duty of 60% to half on completely knocked down kits consisting pre-assembled engines and transmission of vehicles to 30%.

The auto-makers and the government are yet to come to an agreement on the revised 30% import duty structure on CKD kits consisting of pre-assembled engine and transmission brought into India for manufacture. The new structure will undoubtedly attract a price hike on premium cars and bikes coming via the CKD route in the country and eventually the increase in costs will be slapped onto the end user. The auto-makers are still considering the new duty structure and the government policy on CKD kits. Current major players in the market who are drawing benefits of the CKD route include various foreign car-makers along with the three German giants – Mercedes-Benz, Audi and BMW as well as few two-wheeler manufacturers like Harley-Davidson, Kawasaki and the newest entrant, Hyosung Motors from Korea.