Modi government accuses Kia Motors of evading $155M in taxes
What's the story
The Indian government has accused South Korean automaker Kia Motors of evading taxes to the tune of $155 million. The allegations arise from the misclassification of imported components, a claim that Kia firmly denies. This dispute is the latest in a series of confrontations between foreign car manufacturers and New Delhi over tariff issues.
Market share
Kia's market presence and top-selling models
Kia plays a major role in India's auto market, which is the third-largest in the world. The company has a 6% share of roughly four million units sold every year. Its Seltos and Sonet SUVs are some of the best-selling models in the cut-throat market. However, foreign companies in India are usually plagued by high taxes and long-drawn investigations.
Allegations
Tax evasion notice and Kia's response
In April 2024, tax officials sent a confidential notice to Kia's Indian unit, accusing it of tax evasion. The accusation was based on the misdeclaration of imported components for assembling Kia's luxury Carnival minivan. Responding to the allegations, Kia India said it had submitted "a detailed response, supported by comprehensive evidence and documentation to substantiate" its position.
Import strategy
Detailed notice on Kia's alleged tax evasion
The government, in a 432-page notice, said that tax authorities found Kia's Carnival model was being imported in parts/components in separate lots through different ports. This tactic was allegedly employed to lower customs duty and avoid detection by customs officials. The notice, issued by a Chennai-based customs commissioner, hinted this method was similar to Volkswagen's case where it avoided higher taxes on parts imported in "completely knocked down" (CKD) form.
Probe details
Investigation into Carnival model and potential penalties
The investigation found that Kia's website mentioned the Carnival car sold in India in "CKD" form, retailing 9,887 units between 2020 and 2022. Unlike Volkswagen's case, which involved multiple car models, Kia's case is restricted to the Carnival. If guilty, Indian tax rules could force Kia to pay up to $310 million—almost double the sum allegedly evaded due to penalty and interest charges.
Financials
Kia's financial performance
Kia's domestic annual sales in India hit an all-time high of $4.45 billion in fiscal 2022/23, a 53% jump over the previous year. The company recorded a net profit of $243 million during the period. Despite the ongoing tax dispute, Kia has deposited $32 million "under protest" as it continues to contest the tax notice here.
Response
Response from Kia India
Meanwhile, here is Kia India's response: "As a responsible and law-abiding brand, Kia India is committed to following all regulatory requirements in our operations. We have consistently cooperated with authorities whenever required, and we remain dedicated to ensuring complete transparency." "Regarding the current matter, we have already filed a detailed response..However, as the issue is currently under consideration of the relevant authorities, we won't be able to comment further. We remain committed to complying with all due processes and regulations."