Budget 2023: Fully imported cars, including EVs, to cost more; will it boost domestic manufacturing?

Fully imported cars, including electric vehicles, will cost more, with Finance Minister Nirmala Sitharaman announcing a hike in customs duty in the Union Budget 2023-24.

Customs duty on vehicles in completely built units (CBUs) costing less than USD 40,000 or with engine capacity, less than 3,000 cc for petrol-run vehicles and less than 2,500 cc for diesel-run vehicles has been raised from 60 per cent to 70 per cent, as per the Budget document. 

Similarly, customs duty on electrically operated vehicles in CBU form, other than with cost, insurance and freight (CIF) value of more than USD 40,000, has also been raised to 70 per cent from 60 per cent. 

Also read: Budget 2023: Aatmanirbharta agenda reflects in Defence budget; 13 per cent increase in allocation

The Budget also outlined that customs duty on vehicles, including electric vehicles, in semi-Knocked down (SKD) form will rise to 35 per cent from 30 per cent earlier. 

Already, cars imported as CBUs with CIF of more than USD 40,000 or with engine capacity of more than 3,000 cc for petrol-run vehicles and more than 2,500 cc for diesel-run vehicles attract 100 per cent customs duty. 

"The Government has proposed to increase the duties on completely built units (CBUs) to 70 per cent from 60 per cent earlier. This is unlikely to have a material impact as most of the luxury cars are now assembled in India, barring the top-end variants. Nonetheless, an increase in customs duty will further aim to promote domestic manufacturing going ahead," Icra Senior Vice President & Group Head Corporate Ratings Shamsher Dewan said. 

On the other hand, Sitharaman proposed "to further provide impetus to green mobility, customs duty exemption is being extended to import of capital goods and machinery required for the manufacture of lithium-ion cells for batteries used in electric vehicles. 

The Finance Minister also noted that replacing old polluting vehicles is an important part of "greening the country's economy". 

Also read: Budget 2023 Income Tax slabs explained: Who will pay zero tax; what if your salary is Rs 9 lakh?

"In furtherance of the vehicle scrapping policy mentioned in Budget 2021-22, I have allocated adequate funds to scrap old vehicles of the Central Government," she said. 

States will also be supported in replacing old vehicles and ambulances, Sitharaman added. 

"Multiple proposals in the Union Budget are seen favourable for the automotive sector. A sharp 33 per cent increase in capital investment outlay, identification of critical transport projects for first and last-mile connectivity, and relaxation in personal tax rates shall aid the demand for the auto sector," Dewan stated.

Thrust on green energy continues with specific budgetary allocation for old vehicle scrappage, energy transition, and viability gap funding for battery storage solutions with 4000 MWh, he added. 

Dewan said that customs duty exemption on importing capital assets for manufacturing lithium-ion cells for batteries used in electric vehicles should facilitate EV ecosystem development and aid faster penetration. 

"An increase in the duty rates on compounded rubber from 10 per cent to Rs 25 (or) 30 per kg, whichever is less, is a challenge for tyre industry, which significantly depends on imported rubber," he added.

Also read: Budget 2023: Mobiles, TVs to get cheaper; Gold, silver, cigarettes to get costlier; See full list here 

Meanwhile, Pankaj Sharma, Co-founder and Director, Log9 materials said, "The government’s decision to extend the concessional duty on lithium-ion cells for batteries for another year is definitely welcoming as it would sustain the ongoing momentum within the Indian EV sector. Considering EV batteries account for approx upto 60% of the EV cost, this relaxation will make electric vehicles more affordable and hence enhance the EV adoption rate."

(With inputs from PTI)

• Budget 2023
• Union Budget 2023
• Nirmala Sitharaman