Tesla's India Plans Seem Stuck At Tax Hurdle As CBIC Chairman Says No Review Of Duty Structure

The Chairman of the Central Board of Indirect Taxes and Customs (CBIC), Sanjay Kumar Agarwal, has clarified that there are no current plans to review duty structures to facilitate Tesla’s entry into the Indian market.

What Happened: In a conversation with The Indian Express, Agarwal stated that while the Commerce Ministry is working on a plan for Tesla’s entry, the Finance Ministry has no such proposal under consideration. This announcement comes despite the recent reduction in customs duty on certain smartphone components to 10%.

Agarwal underscored that the duty cuts were primarily to avoid classification disputes and were not influenced by international pressure, terming the decision as a “purely local issue”.

The CBIC Chairman also touched upon the issue of mis-invoicing of goods in India-China trade that leads to revenue loss for the Indian exchequer. He acknowledged the challenges in proving undervaluation and the potential for port congestion if investigations were intensified.

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Agarwal further discussed the misuse of free trade agreements (FTAs) and the measures taken to address them, such as the imposition of Customs Administration of Rules of Origin (CAROTAR) under Trade Agreements rules.

Why It Matters: This development is a significant roadblock for Tesla’s India ambitions. Previously, Tesla had proposed a concessional import duty of 15% for its electric vehicles during the first two years of operation. The US electric carmaker’s ambitious plan was linked to the number of cars it could bring in at this reduced duty. Tesla was willing to invest up to $2 billion in a local factory, contingent on the government’s approval for a concessional tariff for 30,000 vehicles.

However, India remains undecided about reducing import taxes on electric vehicles (EVs), a move crucial for easing Tesla's market entry but causing concern among domestic automakers. The proposed policy could slash the current 100% EV import tax to as low as 15% for carmakers committing to future local production.

This firm stance aligns with India's broader strategy to foster industrial growth and domestic value addition, emphasizing the Make in India initiative. It also underscores the government's commitment to enhancing local production and attracting both domestic and foreign investment to build a competitive global presence.

Tesla’s entry into the Indian market also hinges on the availability of a widespread network of fast chargers, a necessity for the company’s proposed use of fast-charging small batteries to significantly reduce the vehicle's cost.

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