New Taxes in India Will Hurt BMW Sales

BMW F01 7 Series 1 photo
Photo: BMW
The recent Union Budged approved in India may turn out to be a bit of a headache for luxury brands. The Indian Government just agreed to increase the taxes on luxury cars from 75% to 100%.
This 25% increase will do quote some damage to the high-end luxury vehicles market that is already at a small margin. This segment is at less than 3% at the moment and it is expected to go even lower in the future months.

Because of the definition that the Indian government issued for a luxury vehicle, not only high-end cars will be affected, but also some of the ones regarded as average in Europe and the US but not in India. The Government decided that any car that costs more than $40,000 will be included in the luxury segment. Furthermore, cars that have engines with a capacity of over 2,500 cc for diesels and 3,000 cc for petrol will also be included in the luxury segment.

Those definitions of a luxury car will bring some important changes to the Indian automotive industry. Also, in a daring attempt to protect the national manufacturers, the Indian legislators decided to increase the tax exempt for the locally assembled utility vehicles and SUVs from the current 27% to 30% making it even harder for luxury SUV manufacturers (like BMW and Audi) to compete on an already small market.

Furthermore, the definition of an SUV is completely new. According to Indian officials, any car with that has a length of more than 4 meters, an engine bigger than 1,500cc and a ground clearance of more than 170 mm is now officially an SUV.

That means that, probably, most luxury manufacturers will be embracing the CKD method in order to assemble and sell their SUVs. CKD stands for Completely Knocked Down kit. That means that the manufacturers will import the parts from the country of origin and assemble the car within Indian territory in order to avoid paying import taxes and to benefit from the tax reduction the Indian state offers local manufacturers.

Some CEOs already reacted to this new policy of the Indian Government and stated that the sales will encounter a rather dramatic downfall after this law will be passed by the Parliament. At the moment BMW did not release an official statement, but as the current method used to decrease the price tag of the 7 Series is the usage of CKD kits, it is expected that this practice will be extended for other models too.
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