Indian automakers propose tax cut on imports in trade deal with Britain

Indian automakers propose tax cut on imports in trade deal with Britain

Global Market
by 5paisa Research Team Last Updated: 2022-10-07T17:09:46+05:30

According to Reuters, Indian automakers have proposed lowering the tax rate on imported cars to 30% as part of a trade agreement with Britain, an unprecedented move that could ease access to one of the world's most protected automobile markets.

It is the first time that Indian automakers have supported such cuts, yielding to government pressure to abandon their protectionist stance and lower entry barriers.

Import taxes ranging from 60% to 100% in the world's fourth-largest car market are among the highest in the world, prompting companies such as Tesla Inc to abandon entry plans due to the high tariffs.

The society of Indian Automobile Manufacturers (SIAM) has written to the government supporting phased cuts to 30% over five years, following a five-year grace period with none.

It was unclear whether India had presented the offer to Britain in upcoming trade talks, with a final agreement expected by the end of the month.

SIAM, which represents car manufacturers ranging from India's best-selling Maruti Suzuki to major corporations such as Tata Motors and Mahindra & Mahindra, did not respond immediately to a request for comment.

The commerce ministry, which is in charge of the trade talks, did not respond either.

For years, Indian automakers have fought tax cuts in order to protect their market share, claiming that such a move would discourage investment in domestic manufacturing by making imports cheaper and easier for global automakers.

While Britain has few car factories run by Nissan, BMW, and Tata's Jaguar Land Rover, companies fear the move will set a precedent in negotiating deals with other countries such as the European Union (EU), Japan, or South Korea.

The shift comes just weeks after Commerce Minister Piyush Goyal told senior executives at Maruti Suzuki, Tata Motors, and Mahindra that India needed to make some kind of auto offer to Britain.

The message from Goyal was clear, “If companies don't come up with a tax-cut proposal, the government will do it for them.”

Maruti, Tata, and Mahindra did not respond immediately to requests for comment.

However, a government source stated that the plan to reduce tax rates by 30% over ten years "is insufficient," while admitting that not reducing tax rates this time was "not an option."

One view is to ease access to luxury cars sooner than other categories. The industry has no problem opening up and lowering rates sooner.

India's push comes as part of a global effort to strengthen trade ties, with agreements recently signed with Australia and the United Arab Emirates in order to attract investment from companies looking to diversify beyond China.

High import taxes were one of the sticking points in previous EU trade talks that ended in 2013.

India has resumed talks with the region, which is home to companies like Volkswagen AG and Mercedes-Benz that see India as a major growth market, with the goal of finalizing a deal by the end of 2023.

Some companies are also concerned that, with large investments being made in clean mobility, the easy import of electric vehicles will harm local players.


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