In a significant development, Volkswagen’s Indian unit, Skoda Auto Volkswagen India, has come under scrutiny for allegedly evading $1.4 billion in import taxes. The accusations, outlined in a government notice issued on September 30, claim that Volkswagen misclassified imports of car components as “individual parts” to avoid higher tax rates, paying duties of 5-15% instead of the mandated 30-35% for Completely Knocked Down (CKD) units.
The Allegations
Indian authorities argue that Volkswagen imported nearly entire cars in unassembled forms, a process intended to attract higher duties under the CKD classification. By splitting shipments into multiple consignments and labeling them as individual parts, the automaker allegedly evaded taxes on models like the Skoda Superb, Kodiaq, Audi A4, and VW Tiguan SUVs.
The notice describes this as a “deliberate ploy” to circumvent customs laws, pointing to Volkswagen’s logistics systems and internal software as tools used to separate components across different shipments.
Financial Implications
Since 2012, Volkswagen’s India unit should have paid $2.35 billion in taxes. Instead, the company paid $981 million, leading to the alleged $1.36 billion shortfall. Penalties, if imposed, could double the financial burden, taking the total to $2.8 billion.
This development impacted Volkswagen shares, which dropped by over 2% on the Frankfurt stock exchange following the report.
Volkswagen’s Response
In its official statement, Skoda Auto Volkswagen India stated its commitment to complying with all laws and regulations, adding that it is cooperating with authorities and analyzing the notice. However, the company has not confirmed whether it has formally responded to the notice within the stipulated 30-day window.
Investigation Insights
Indian investigators allege that Volkswagen used sophisticated logistical arrangements to import the components, with orders placed through software connecting suppliers in countries such as Germany, Mexico, and the Czech Republic. These parts were shipped within days under separate invoices, reaching Indian ports simultaneously, enabling lower customs duties.
Searches at Volkswagen’s factories in Maharashtra in 2022 uncovered documents and email correspondences suggesting tax evasion. Piyush Arora, the company’s Managing Director in India, was also questioned but reportedly failed to provide satisfactory explanations for the logistics strategy.
Industry Implications
India’s high import duties have been a contentious issue for global automakers, with companies like Tesla and Vodafone previously facing disputes over taxes. The case against Volkswagen underscores the challenges foreign firms encounter in navigating India’s complex tax regime, particularly for CKD imports.
What’s Next?
The customs department has issued a show-cause notice, demanding explanations for the alleged violations. If Volkswagen is found guilty, it may face severe financial repercussions and potential reputational damage, particularly as the company struggles to expand its market share in India’s competitive automobile sector.
This news report is curated with insights from multiple reliable news sources.
