One of the first lessons they teach you in corporate finance course is that a stable tax regime is a must for a sound economy. This may be the first lesson, but over the years, successive central and state governments in India have not bothered about it.
Consider the latest case of Union Finance Minister, Arun Jaitley, announcing in his budget that there will be an increase in customs duty on the import of cars and bikes coming to the Indian market through CKD (completely knocked down) route.
Since the rollout of Goods and Services Tax (GST), this will be the third time that the price of these cars for end consumers will change. It breaks down the trust between the manufacturers and the customers. Not knowing that the price changes are because of the government, the consumers are going to blame automobile dealers and manufacturers for the price change, which is really unfair.
Moreover, changing tax rates on CKD automobiles sends a really wrong message to a number of multi-national companies, which are manufacturing cars and bikes in India by assembling parts imported from outside.
Harley-Davidson manufactures most of its bikes in India through CKD route, which means manufactured parts of those bikes are imported at company’s plant in India and later assembled to make the finished product.
Harley-Davidson is not alone as even premium car manufacturers like Audi and BMW manufacture cars in India by CKD route. Often, these companies have to do so because India doesn’t have the capacity to manufacture all automobile parts locally. Naturally then, it is not the problem of these companies that they are not able to manufacture all parts of automobiles in India.
It, therefore, comes as no surprise that US President, Donald Trump, has criticised import duties levied on Harley-Davidson’s bikes in India. Trump’s reaction came after Central Board of Excise and Customs (CBEC) slashed the import duty on all bikes imported in India as completely-built-up (CBU) unit to 50 per cent.
Trump has reportedly even said that the US doesn’t impose any import duty on bikes imported from India. Citing this, Trump has asked for a reciprocal gesture from the Indian government.
Whether or not the Indian government will reduce taxes on imported bikes is a different issue, the main concern is that our government has been changing tax rates on automobiles far too often. Frequent change in tax-structure makes it almost impossible for automobile manufacturers to forecast their margins.
If manufacturers find it tough to forecast their business performance, they will find it tough to Make-in-India as well, which is the mission of Prime Minister, Narendra Modi. Modi’s government will leave a lasting legacy if once and for all it commits itself to having a stable tax regime in the country.
