Indian tax authorities are investigating Chinese carmaker BYD

• Published On: 2 August 2023
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China's leading electric vehicle manufacturer, BYD, is facing allegations of tax evasion in India over imported car parts used in local vehicle assembly. India's Directorate of Revenue Intelligence (DRI) claims BYD underpaid 730 million rupees (USD 9 million) in taxes, which has been deposited by the company. India imposes import taxes of 70% or 100% on complete electric cars, and 15% or 35% on imported car parts assembled into EVs locally.

Chinese automaker BYD is currently undergoing an ongoing investigation in India concerning accusations of underpayment of taxes on imported car parts used in its assembled and sold vehicles within the country. This investigation, led by India's Directorate of Revenue Intelligence (DRI), alleges that BYD, the largest electric vehicle manufacturer in China, failed to pay approximately 730 million rupees (equivalent to USD 9 million) in taxes. Despite already depositing this amount following the initial findings by DRI, the inquiry is still in progress and could potentially result in additional tax liabilities and penalties. A final notice from DRI to BYD has not yet been issued, and BYD retains the option to challenge the investigation's conclusions.

Requests for comments from both BYD in India and China have gone unanswered, as have attempts to elicit a response from India's finance ministry. BYD's situation has attracted increased attention from Indian authorities due to a proposed USD 1 billion investment to establish local car production. This comes amidst stricter regulations on foreign investment from neighboring countries, including China. Reports suggest that BYD informed its Indian joint venture partner about considering the possibility of abandoning these investment plans.

Since border conflicts between India and China emerged in 2020, companies from China have faced heightened scrutiny in India. Notably, smartphone manufacturer Xiaomi Corp has encountered allegations of unauthorized remittances to foreign entities using royalties, which it has contested in court.

India imposes import taxes of either 70% or 100% on fully built electric cars, depending on their value, while taxing imported car parts used in local electric vehicle assembly at rates of 15% or 35%. However, these lower rates are only applicable when components like battery packs or motors are imported separately, not integrated onto a vehicle chassis. According to sources, BYD allegedly did not meet these conditions, potentially making it liable to pay the higher import tax rates of 70% or 100%, based on the car's value. The exact timeframe of the purported violation and the extent of its impact on the number of vehicles involved remain unclear.

BYD, which has invested over USD 200 million in India, currently offers the Atto 3 electric SUV and the e6 EV for corporate fleets. The company has plans to introduce its Seal electric sedan later this year. Since commencing sales in 2022, government registration data indicates that BYD has sold approximately 1,960 cars in India.