December 8, 2023

Chinese automaker BYD is currently facing an investigation in India over allegations of insufficient tax payment on imported parts used in the assembly of their cars sold in the country. The ongoing probe, initiated by India’s Directorate of Revenue Intelligence (DRI), has raised concerns for BYD, China’s largest electric vehicle (EV) maker, as it navigates the challenges of expanding in India amidst strained relations between New Delhi and Beijing. The investigation centers on an alleged underpaid tax of 730 million rupees ($9 million), which has prompted BYD to deposit the sum in question. However, the outcome remains uncertain, as the DRI is yet to issue a final notice to BYD, allowing the automaker the option to challenge the findings.

BYD’s Response and India’s Finance Ministry: Despite several requests for comments, both BYD representatives in India and China remained silent regarding the ongoing investigation. Similarly, India’s finance ministry did not provide any official statements in response to inquiries made via email and WhatsApp.

Increased Scrutiny on BYD and Chinese Companies in India: BYD finds itself under increased scrutiny from New Delhi due to a proposed $1 billion investment plan to establish local car production facilities. This decision comes amid tighter regulations on foreign investment from neighboring countries, including China. BYD reportedly even considered abandoning its investment plans in light of the growing scrutiny.

Background on Chinese Companies in India: The spotlight on Chinese companies in India emerged in 2020 following border clashes between the two neighboring nations. Smartphone manufacturer Xiaomi Corp has also faced allegations of illegal remittances to foreign entities under the pretext of royalties, although the company has firmly denied these allegations and sought to challenge them in court.

Indian Tax Structure for EV Imports and Assembly: India imposes varying tax rates on electric vehicles based on the mode of import. Fully built electric cars attract taxes of either 70% or 100% depending on their value. However, when car parts are imported and subsequently assembled locally into an EV, the tax rates are reduced to 15% or 35%, applicable only if certain conditions are met. Specifically, the reduced rates are valid when parts like battery packs or motors are imported without being mounted on a vehicle chassis.

BYD’s Compliance Status: According to one of the sources with direct knowledge of the matter, BYD allegedly failed to meet the necessary conditions for availing the lower tax rates. As a result, the automaker may face liability for paying either the full 70% or 100% tax, depending on the value of the cars in question.

The precise timeline and scale of the alleged violation remain unclear. Nevertheless, the ongoing investigation and potential tax charges have cast a cloud of uncertainty over BYD’s operations in India. Despite having already invested over $200 million in the country and selling 1,960 cars since 2022, BYD must now navigate the complexities of India’s regulatory landscape as it continues to market its electric vehicles to corporate fleets. The outcome of the investigation may significantly impact BYD’s future plans in the Indian market, making it crucial for the automaker to address the situation effectively and transparently.

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